Federal prosecutors have opened a criminal investigation related to possible insider trading in Microsoft stock by Pequot Capital Management, the hedge fund run by Arthur Samberg, the transcript of a recent court hearing shows.
The U.S. Attorney's office in Manhattan is leading the criminal investigation with help from the Federal Bureau of
Investigation, according to information in the transcript and lawyers involved in the case.
As Portfolio.com reported in January, new evidence of more than $2 million in payments from
Pequot to a former Microsoft employee had already prompted the
Securities and Exchange Commission to reopen its civil investigation of the trading. The agency had closed the probe in 2006 without taking action.
That original SEC investigation, which also had looked into whether
Samberg had acquired inside information on a different company from
Morgan Stanley CEO John Mack, received considerable public criticism after it was closed. The SEC fired its lead investigator on the case, who had pressed to keep the investigation going.
Subsequent reports by Senate committees and the SEC's own inspector general concluded that the agency shouldn't have closed the case, and that officials had acted improperly by firing the lead investigator.
Existence of the criminal investigation was disclosed January 28 during a brief divorce case hearing in a Stamford, Connecticut, state court.
Portfolio obtained the transcript last week.
The divorce case involves David Zilkha, a former Microsoft employee who later worked for Samberg, and who was suspected in the original SEC inquiry of having been a conduit of inside information about Microsoft to
Samberg in 2001.
During the hearing, Jill Blomberg, lawyer for
Zilkha's ex-wife, Karen Kaiser, told Superior Court Judge Michael Shay that Kaiser was scheduled to meet federal officials to answer questions relating to an investigation of Samberg and David Zilkha.
"The
U.S. Attorney, the FBI, and the SEC have contacted my client, and she's scheduled to appear before them next week," Blomberg told the judge in the January 28 hearing. "There is an investigation, Your Honor, into
Mr. Zilkha's involvement with Mr. Arthur Samberg and with Pequot
Capital."
The lawyer added that the SEC had subpoenaed some computer equipment that had once belonged to Zilkha, and that Kaiser had turned it over "to the federal investigators."
Two lawyers involved in the case today confirmed that the FBI and federal prosecutors have been interviewing potential witnesses and have obtained records relating to Samberg and Zilkha.
It was recently disclosed that Kaiser had obtained the hard drive from
Zilkha's personal computer when they were still married. It contained e-mail exchanges between Zilkha and a Microsoft employee that appear to show Zilkha soliciting confidential information about Microsoft's finances.
The dates of the e-mail exchanges appear to coincide with key dates in the SEC's original insider trading investigation, when Zilkha was communicating with Samberg and when Pequot made highly profitable trades in Microsoft securities in advance of an earnings announcement.
Several months ago, in personal financial statements that Zilkha is required to file with the Connecticut court, he disclosed that Samberg had recently paid him $1.4 million, and had promised an additional $700,000 by April 2009.
The payments raise questions because Zilkha had last worked for Samberg in 2001 and had had no known contact with him after that. When U.S. Senate investigators learned of the payments last December, Senator Charles
Grassley, Republican of Iowa, publicly called for the SEC to reopen its investigation, and to look into whether the recent payments by Samberg may have been improper.
In response to direct inquiries from Senate investigators, Samberg's lawyers said the payments were part of a compensation agreement.
Jonathan Gasthalter, a spokesman for Samberg and Pequot, said he wouldn't have any comment.
It's unclear if the U.S. Attorney and FBI are looking into the suspected inside trading, into whether the payments to Zilkha may have been bribes or some other form of illegal compensation, or into possible perjury by individuals who testified under oath during the initial SEC investigation.
Janice Oh, a spokeswoman for the
U.S. Attorney's office in Manhattan, declined to answer any questions.
She said that it is office policy to "neither confirm nor deny the existence of investigations."
Henry Putzel, a lawyer for David Zilkha, said, "I have no comment except to say that Mr. Zilkha has engaged in no wrongdoing."
By Scot J Paltrow for Portfolio.com: News and Markets **Related Links:
