Securities Law Blog

Pequot Capital Management, Inc. and its Chairman and CEO Arthur Samberg have agreed to pay $28 million to settle insider trading charges filed by the Securities and Exchange Commission (SEC).

The SEC alleged that in April 2001, the Connecticut-based hedge fund manager and Samberg sought information from Microsoft employee David Zilkha, in regards to Microsoft’s earnings estimates for the quarter. Zilkha, who at the time had recently accepted an employment offer with Pequot, allegedly provided Samberg with information that Microsoft would “meet or beat its earnings estimates for the quarter.”

Following the exchange of information, Samberg allegedly traded in Microsoft on behalf of funds managed by Pequot. After the market closed on April 19, 2010, Microsoft announced publicly that it beat its earnings estimates, driving up the price of Microsoft’s stock. According to the SEC complaint, Pequot funds made more than $14 million as a result of the alleged illegal trading practices.

Pequot and Samberg agreed to pay nearly $18 million in disgorgement of trading profits and prejudgment interest as well as $10 million in penalties. Samberg has also agreed to be barred from working as an investment advisor.

The SEC is continuing its insider trading suit against Zilkha, who did not settle with regulators. According to the SEC, Zilkha allegedly lied to SEC staff regarding e-mails with information about Microsoft earnings during a 2005 and 2006 investigation.