The U.S. Securities and Exchange Commission will pay $755,000 to a former enforcement attorney who said the agency unjustly fired him after he tried to investigate insider-trading allegations involving former Morgan Stanley Chief Executive Officer John Mack.
Gary Aguirre will be paid $649,100 plus attorneys’ fees totaling $105,900 to resolve allegations he was a victim of whistleblower retaliation, according to a Merit Systems Protection Board settlement released today. The total covers more than four years of salary Aguirre would have received if he hadn’t been fired by the SEC in September 2005.
Aguirre complained during congressional testimony in 2006 that supervisors blocked his investigation of Mack because of the executive’s stature in the financial industry. The accord with Aguirre concludes an embarrassing period for the SEC in which Senators Charles Grassley and Arlen Specter ordered senior officials to testify and accused the agency of showing deference to Wall Street, former SEC attorney Jacob Frenkel said.
“This is the agency putting a difficult chapter behind it,” said Frenkel, who’s now at law firm Shulman Rogers Gandal Pordy & Ecker in Potomac, Maryland.
Aguirre, 70, said he suspected that Pequot Capital Management Inc. illegally profited from trading on information Mack provided before joining Morgan Stanley in June 2005. Mack denied wrongdoing when he was questioned by the SEC in August 2006. The agency closed its probe of the CEO three months later.
The SEC later opened a second investigation of Pequot that focused on whether the hedge fund illegally profited in 2001 by obtaining market-moving tips about Microsoft Corp.
Pequot and its founder, Arthur Samberg, agreed in May to pay almost $28 million to settle claims they received inside information about expected Microsoft earnings from an employee at the software company who was about to join Pequot.
The resolution of the Pequot case made it possible for Aguirre to reach an accord with the SEC, he said today in a telephone interview.
“I wanted to demonstrate one way or another that the SEC had made a huge mistake in closing down this investigation,” he said. “Getting them to come clean, that was the victory.”
Mack, who remains chairman of Morgan Stanley after stepping down as CEO in December, repeatedly denied wrongdoing. Samberg and Pequot didn’t admit or deny wrongdoing in settling the case.
Aguirre didn’t “work effectively with other staff members” and was unwilling “to operate within the SEC process,” then-SEC Enforcement Director Linda Thomsen said in his 2005 termination notice. He was fired six days before his one-year anniversary at the SEC, when he was a probationary employee and thus easier to terminate.
Thomsen submitted the termination notice less than two weeks after Aguirre got a raise increasing his salary by $3,853 to $134,110. Aguirre also received a performance evaluation in June 2005 that said his work was acceptable.
SEC enforcement attorney Mark Kreitman, who was Aguirre’s supervisor, said he signed off on the pay increase because “his staff was underpaid and wanted them to get what money was available,” according to a 2008 report by SEC Inspector General H. David Kotz. Kreitman said he had “serious reservations” about Aguirre, according to Kotz’s report.
“The settlement with Mr. Aguirre shows that the SEC is finally acknowledging its mistake,” Specter, a Pennsylvania Democrat, said in a statement.
The accord is “global,” meaning it resolves all current disputes between Aguirre and the agency, and any future grievances that may arise. Aguirre agreed to never apply for another job at the agency.
The agreement isn’t an admission by the SEC that Aguirre’s claims had merit, according to the settlement filing. The resolution “reflects the agency’s determination to focus on its core mission of protecting investors,” SEC spokesman John Nester said.
Kotz concluded the SEC mishandled Aguirre’s firing. Aguirre’s supervisors didn’t provide timely feedback when they had concerns about his conduct, denying him the chance to change his behavior, said Kotz, who conducted his review of the termination at the request of Grassley, an Iowa Republican.
Specter and Grassley released a report in August 2007 that concluded the main reason the SEC didn’t question Mack earlier was because of his “prominent position on Wall Street” and connections his lawyers had with senior SEC officials. Aguirre’s pursuit of his testimony was “reasonable,” it said.
“The stated reasons for his termination simply do not hold up under close scrutiny, leaving the Mack dispute as the more persuasive explanation,” the report said.
--Editors: Gregory Mott, David Scheer
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By Jesse Westbrook