Fried, Frank, Harris, Shriver & Jacobson and Wachtell, Lipton, Rosen & Katz played key roles brokering a $28 million settlement that resolves a long-simmering allegation that Pequot Capital Management, the Westport, Conn.-based hedge fund, committed insider trading in Microsoft securities in 2001, according to SEC officials.
The SEC filed suit against Pequot and its chairman, Arthur Samberg, Thursday, and announced at the same time that Pequot and Samberg agreed to pay $28 million combined in disgorged profits and penalties to settle the case. (They did not admit or deny guilt.) Federal investigators had been looking into the allegations since at least 2005 but closed early investigations after failing to find enough evidence to bring a case, according to our prior reporting. But then something happened that didn’t help Pequot: The employee at the center of the case got divorced, and e-mails implicating the employee, David Zilkha, in the insider trading scheme came to light in filings. Zilkha joined Pequot in 2001 after working for Microsoft, and he used his contacts at Microsoft to tip Pequot to the fact that Microsoft was about to release a better-than-expected earnings report in the spring of 2001. Pequot then made $14 million on trades of Microsoft securities, according to the SEC’s complaint.