Hedge fund firm Pequot shuts down

CEO Arthur Samberg makes decision in wake of insider trading probe.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

Would you buy a home now?
  • Yes, housing prices have hit bottom.
  • No, the real estate market still has further to drop.

NEW YORK (Reuters) -- Prominent hedge fund firm Pequot Capital told investors Wednesday it will shut down because of a reopened government probe into possible insider trading.

"Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction," the firm's founder Arthur Samberg, long one of the hedge fund industry's best-known managers, wrote in a letter obtained by Reuters.

"With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment adviser."

In the past, Samberg and Pequot have denied allegations of insider trading.

The fund's closure is likely to reignite controversy over the firing of an SEC lawyer whose earlier probe into Pequot led him to request an interview with John Mack, who is now the powerful head of Wall Street investment bank Morgan Stanley.

The lawyer, Gary Aguirre, said he was fired because of his persistent requests for the interview.

Mack, a friend of Samberg, had worked at the Westport, Connecticut-based hedge fund firm from 2004 to 2005 before taking the Morgan Stanley position in the summer of 2005.

A Morgan Stanley spokeswoman declined to comment.

The SEC's Inspector General last year said there was a connection between Aguirre's firing and his efforts to interview the influential Wall Street executive in connection with the probe.

Pequot, which once invested $15 billion and most recently managed $3 billion, became the target of a Securities and Exchange Commission and U.S. Attorney's office investigation several years ago when investigators reviewed trades made by Samberg in Microsoft stock in 2001 by the Core Funds.

Although regulators and prosecutors brought no charges and closed the probe in 2006, the government reopened the matter in 2008.

Samberg told investors that the firm will spin off two portfolios and liquidate its Core Funds. Fund manager Mike Corasaniti will run the Matawin fund while Rob Webster and Paul Mellinger will lead the Special Opportunities fund as separate entities before the end of the year, Samberg said. Other investors will begin to get their money back by the end of next month.

Samberg's illustrious career has included growing Pequot into one of the world's most powerful hedge funds and being counted among industry leaders whose opinions could move markets.

The 68-year-old trader, who famously once had a basketball court built in his offices for his employees, started his career by focusing on stocks. He later moved into other areas.

Now he joins the growing ranks of shuttered hedge funds, a list that also includes his former partner, Dan Benton, who shocked investors by his decision to close down last year.

For years, Samberg's fund beat the broader stock market, and its recent performance would not appear to make a shutdown necessary. Since it was launched in 22 years ago, Samberg's fund earned a net annualized 16.8% while the Standard & Poor's 500 index returned 8.5%.

Last year hedge funds delivered their worst-ever losses of 19% last year.

Skittish investors including pension funds are especially nervous about problems like SEC probes right now and some industry analysts speculated that some investors were ready to pull money out. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
17 cool gadgets that tease the future Smart telescopes, surveillance for dogs, an electric roadster and more from CES 2018. More
These 12 airplane beds let you really sleep on a flight For the price of a premium class ticket, you may just get a space that's comfortable, private, and quiet enough to ensure a good rest. More
CES 2018 kicks off with oddball gadgets The biggest tech show of the year opened with a collection of quirky gadgets. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Copyright 2009 Reuters All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.