In 2006, Gary Aguirre, a then-client of GAP attorneys, rocked the financial world by alleging wrongdoing by Securities and Exchange Commission officials for their failure to not allow a proper investigation to proceed, possibly due to political connections. Aguirre is a former SEC lawyer who was dismissed by the agency following his attempt to subpoena John Mack – a prominent financial figure who later became the CEO of Morgan Stanley – in an insider trading investigation of Pequot Capital Management, one of the country’s leading hedge funds. Aguirre’s story sparked outrage, a Congressional investigation, and (eventual) vindication by the U.S. Senate.
Aguirre’s battle dates back to June 2005, when he suddenly encountered resistance at the S.E.C. during the course of his investigation of Pequot. A $7 billion hedge fund, Pequot’s CEO was Arthur J. Samberg, another prominent financial figure and longtime friend of John Mack, who preceded Samberg as Pequot CEO. Hedge funds are unregulated private investment funds that typically engage in unconventional investment strategies, such as short-selling.
Prior to that date, Aguirre had been investigating the case for months, issuing over 90 subpoenas without obstruction. When Aguirre recommended that Mack’s testimony be taken under oath, he was told by his supervisor that it would be difficult to obtain approval for the subpoena due to Mack’s powerful “political connections.” Over the course of the next two months, Aguirre’s supervisors refused to allow him to issue Mack a subpoena. Aguirre questioned this decision at every level up the chain of command (including SEC Chairman Christopher Cox), reporting his superior’s behavior and providing evidence supporting his subpoena request.
In September 2005, Aguirre was fired 11 days after being awarded a two-step pay increase.
Aguirre came to GAP attorneys seeking legal protection for any possible future retaliation made against him. Months later, The New York Times ran a front-page story on his case and allegations against the S.E.C.
Weeks after the story broke, Aguirre testified at a Senate Judiciary Committee hearing entitled Hedge Fund and Analysts: How Independent Is Their Relationship? At the hearing, Committee Chairman Arlen Specter (R-Pa) expressed his outrage at SEC attempts to silence Aguirre, announcing his commitment to investigate further. Aguirre provided numerous pieces of evidence to Congress that supported his assertion that Mack should have been subpoenaed to take his testimony. A joint investigation of the Senate Finance and Judiciary Committees was announced.
In a stunning reversal, in the months following the initial media hoopla, the SEC did interview Mack in connection with the insider trading investigation of Pequot – a validation of Aguirre’s assessment. Additionally, Sen. Charles Grassley (R-Iowa), another member of the committee and longtime champion of whistleblowers, urged the SEC to reopen an investigation by the agency’s Inspector General into Aguirre’s allegations (In an earlier investigation, the IG concluded, without interviewing Aguirre, that the SEC did not wrongly fire him). That subsequent report, which was released in late 2008, validated Aguirre’s claims, finding that the SEC gave “preferential treatment” to Mack, and that "there was a connection between the decision to terminate Aguirre and his seeking to take Mack's testimony."
Aguirre eventually testified again in front of the Senate Judiciary Committee, offering further analysis of the role of proper oversight in regards to hedge funds. More and more evidence emerged supporting Aguirre’s allegations. Finally, the Senate Finance and Judiciary committees released their full report, which completely validated all of Aguirre’s claims. This was a significant victory.
In May 2009, after numerous insider-trading investigations by the SEC, Pequot closed down. Many economists also feel that these large-scale hedge funds had a significant effect on the sub-prime mortgage market’s burst, which led to the current global recession. The S.E.C. continues to be criticized for a lack of internal oversight, as evidence by the Bernie Madoff scandal (which also involved a whistleblower).