The Securities and Exchange Commission mishandled its inquiry into suspect trades by a prominent hedge fund, then may have tried to cover up those mistakes after its chief investigator on the case complained, according to an interim Senate report released Thursday. The report, released by the former chairmen of the Senate Judiciary and Finance Committees, Arlen Specter of Pennsylvania and Charles E. Grassley of Iowa, also asked the S.E.C. or the Justice Department to consider investigating whether false testimony was given to S.E.C. officials who examined the hedge fund, Pequot Capital Management.
The report did not cite examples of what testimony might have been false.
The two Senate committees began looking into the case in July after the investigator, a commission lawyer named Gary J. Aguirre, said he was fired for complaining that the Pequot investigation had been derailed because of political considerations.
“At best, the picture shows extraordinarily lax enforcement by the S.E.C.,” Senate investigators concluded. “At worse, the picture is colored with overtones of a possible cover-up.”
The report strongly suggests that Mr. Aguirre was fired in retaliation for his criticism. At the same time, Senate investigators said they were “deeply troubled” by the failure of the S.E.C.’s inspector general, Walter J. Stachnik, to investigate Mr. Aguirre’s accusations properly.
Mr. Aguirre testified that his troubles at the S.E.C. began when he asked for permission to examine John J. Mack, an influential Wall Street executive. After initially supporting Mr. Aguirre’s decision, senior S.E.C. officials abruptly changed course, the report notes.
“What is troubling is how this enthusiasm waned after public reports on June 23, 2005, that Morgan Stanley was considering hiring Mack as its new C.E.O.,” the report concludes.
Mr. Mack’s testimony was eventually taken in August 2006, more than a year after Mr. Aguirre proposed doing so. “We are concerned about the circumstances under which it was done,” investigators said. “Mack’s testimony was taken five days after the statute of limitations expired, and only a few months after we initiated our inquiry into this matter.”
The report concludes that the S.E.C. finally interviewed Mr. Mack to deflect public criticism for not having done it earlier.
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