Clarification Appended: September 20, 2007
Gary J. Aguirre had to apply 24 times to become a staff attorney for the Securities and Exchange Commission, but it only took his first case to make him realize that this was not his public service dream come true. The assignment was heady stuff, a hedge fund insider-trading case that possibly involved one of Wall Street's top executives, John J. Mack, the current CEO of Morgan Stanley. Aguirre threw himself into it with furious energy, and was not intimidated going up against dozens of defense lawyers. That was until his bosses withdrew their support of how he was pursuing the investigation, abruptly reversed and downgraded his performance reviews, and then unceremoniously fired him on the last day of his first annual vacation on Sept. 1, 2005.
Through Aguirre's persistence, the ensuing spat spilled over to Capitol Hill. The Senate Judiciary Committee ended up holding three hearings, and in early August issued jointly with the Finance Committee a damning, 108-page report that largely backs up Aguirre's allegations of outside interference in an SEC investigation. In highlighting institutional deference to Wall Street bigwigs, arbitrary personnel practices and a dysfunctional inspector general's office, the report seriously calls into question how effectively the SEC is carrying out its mission of policing U.S. capital markets, especially at a time when new opportunities for insider trading are proliferating.
From the beginning, Aguirre didn't fit the typical SEC profile. The agency prefers to harvest its lawyers, young and malleable, but Aguirre heard a calling for public service after 28 years of private practice in San Diego. At the age of 61, he enrolled at Georgetown, and spent two years earning a masters in law degree (LL.M.), focusing on securities law. Once he got his chance at the SEC in September of 2004, the rookie was handed a case involving suspicious trading activity possibly based on someone tipping off Pequot Capital Management, Inc., a $7.4 billion Westport, Conn., hedge fund, to an impending General Electric purchase of Heller Financial. That someone, Aguirre soon believed, was most likely none other than John Mack. Pequot's CEO Arthur J. Samberg, according to the Senate report, was one of the first people Mack contacted after returning from Switzerland in late June of 2001, where Mack had interviewed to become CEO of Credit Suisse First Boston (now Credit Suisse), which happened to be advising Heller on the GE acquisition. (Morgan Stanley, where Mack had served a first stint as CEO until March 2001, was working the other side of the deal advising GE.)
Mack told Samberg he wanted to invest $5 million in a closed Pequot fund, and he was also able to invest in another equity fund (Fresh Start), the only individual allowed to do so, according to the Senate report. Within days Pequot, at Samberg's direction, started aggressively buying Heller stock, while shorting GE. In a matter of a few weeks, and after the acquisition was announced on July 30, 2001, Pequot had scooped up $18 million in earnings, a performance that caught the attention of the New York Stock Exchange.
Aguirre thought this was reason enough to depose Mack, and his supervisors initially seemed supportive, until outside lawyers started contacting them, including enforcement division director Linda Thomsen, and her deputy Paul Berger. Aguirre's supervisors have all denied to Congress they were influenced by anyone, and insist they had a principled objection to taking Mack's testimony, largely because it was insufficiently supported by existing evidence.
The disagreement quickly turned personal and ugly, at least according to his supervisors. Aguirre was insubordinate and abrasive, impugned colleagues' integrity, threw tantrums, was unprofessional in taking depositions, and generally "insufficiently cognizant of institutional protocol," supervisors later complained in congressional testimony. "Frighteningly, it appeared that Mr. Aguirre was pursuing a personal agenda bordering on vendetta," recalled Mark Kreitman, assistant director of the enforcement division, who was his former professor at Georgetown and one of his supervisors at the SEC. Aguirre claims all these accusations were concocted after the fact, and were never part of his paper record. He had just gotten a raise, and had glowing evaluations before the meltdown, he notes; as for his "unprofessional" deposition of Samberg, Hilton Foster, a now retired staff trainer, wanted to include it as a model in his course material. And in fact, the final Senate report discredited the allegations against Aguirre, concluding that "[Aguirre's] termination appears to be merely the culmination of the process of reprisal that began with the August 1 re-evaluation."