Pasadena Star-News – Two class-action lawsuits filed in Manhattan federal court in April allege fraud by the world’s largest “prime brokers” in securities lending practices.
Goldman Sachs, Bear Stearns, Lehman Brothers, Morgan Stanley, Merrill Lynch, Citigroup, Banc of America Securities, Credit Suisse, Deutsche Bank Securities, UBS Financial and Bank of New York allegedly charge high fees to lend securities for short selling, but fail to deliver the securities sold short by hedge funds.
On June 28, the Senate Judiciary Committee held a hearing in Washington, D.C., on hedge fund relations with independent research firms. That hearing’s star witness was Gary Aguirre. Until September 2005, Aguirre was the Securities & Exchange Commission’s senior counsel leading its most important investigation of illegal trading by a hedge fund.
Aguirre told the Judiciary Committee that SEC’s investigation of Pequot Capital Management (a $7 billion hedge fund) began after 18 reports of suspected insider trading from self regulating organizations (SROs), such as NASD or NYSE. After he interviewed dozens of witnesses, Aguirre says, his SEC superiors allowed him to take the evidence to the U.S. Attorney for criminal prosecution, and to subpoena the central target of insider trading cases – the “tipper.”
But Aguirre testified that his attempt to take sworn testimony of the “tipper” was derailed after he revealed the primary suspect to be John Mack. At the time, Mack was being recruited as the CEO of Morgan Stanley.
