Litigation Release No. 21540 / May 28, 2010

Securities and Exchange Commission v. Pequot Capital Management, Inc. and Arthur J. Samberg, 3:10-CV-00831-CVD (United States District Court for the District of Connecticut, Complaint filed May 27, 2010)

SEC Charges Pequot Capital Management, Inc. and CEO Arthur Samberg in Insider Trading Case

The Securities and Exchange Commission announced today that on May 27, 2010, it filed a settled civil enforcement action against Pequot Capital Management, Inc., a registered investment adviser based in Connecticut, and Arthur J. Samberg, its Chairman and CEO, in connection with insider trading in Microsoft Corp. securities in 2001.

The Commission's complaint, filed in the United States District Court in Connecticut, alleges that on Friday, April 6, 2001, amidst rumors that Microsoft would miss its earnings estimates for the quarter that had ended on March 31, Samberg emailed David Zilkha, seeking information about whether Microsoft would meet its earnings estimates. At the time, Zilkha was a Microsoft employee who had accepted an offer of employment from Pequot. That weekend, Zilkha contacted colleagues at Microsoft and learned that Microsoft would meet or beat its estimates. The Commission's complaint further alleged that based on this inside information, Zilkha then conveyed to Samberg his understanding that Microsoft would meet or beat its earnings estimates. Samberg thereafter purchased Microsoft options on behalf of funds managed by Pequot. In addition, at Samberg's recommendation, a friend of Samberg's purchased Microsoft stock. On April 19, 2001, after the market had closed, Microsoft announced its earnings for the quarter. Consistent with the information Zilkha had conveyed to Samberg, Microsoft beat its earnings estimates. As a result of the illegal trading, the Pequot funds had gains of $14,769,960 and Samberg's friend had gains of $372,060.

Without admitting or denying the allegations in the complaint, Pequot and Samberg have consented to the entry of a final judgment enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgment also orders them to disgorge, on a joint and several basis, ill-gotten gains of $15,242,020 (plus prejudgment interest of $2,696,448) and to pay a civil penalty of $5 million each. In a related administrative proceeding before the Commission, Pequot and Samberg have also agreed to an order censuring Pequot and, subject to a limited carve-out, barring Samberg from association with an investment adviser.

On May 27, 2010, the Commission also instituted administrative proceedings against Zilkha charging him with insider trading on the basis of the same conduct.

See Also: SEC Complaint


Last modified: 5/28/2010