Breaking The System: How Two Whistleblowers Exposed Corruption At The SEC And Took Down The Largest Hedge Fund In The World

Daniel Drew, 9/23/2018

Gary Aguirre looked down at the paper beneath his glasses, his eyes slowly moving side to side. He was on summer vacation, and he wasn't sure why the SEC was contacting him while he was out of the office. Then he read the subject line: "Notice of Termination." He started reading more quickly, his eyes dancing back and forth with incredulity. The phrases seemed to jump off the paper, "Terminated.....inability to work effectively with other staff members.....unwillingness to operate within SEC process.....your conduct was inappropriate.....ignored the chain of command.....this decision represents the consensus....."

Aguirre was fired. He slammed the paper on the table, and his wife walked in to see what was wrong. How could they do this? How could they get away with it? How could he stop them? Was this how it would end?

Aguirre walked outside and looked at the sunset. For a moment, he forgot why he had bothered to take this job.

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On June 6, 1966, Robert Kennedy addressed students at the University of Cape Town about civil rights in the United States, South Africa, and around the world. Speaking in his unmistakable cadence, he declared,

"Each time a man stands up for an ideal, or acts to improve the lot of others, or strikes out against injustice, he sends forth a tiny ripple of hope, and crossing each other from a million different centers of energy and daring those ripples build a current which can sweep down the mightiest walls of oppression and resistance."

Gary Aguirre was listening.

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Six months after Kennedy's Cape Town speech, Aguirre was admitted to the State Bar of California. He joined Brobeck, Phleger & Harrison, one of San Francisco's largest law firms. When he wasn't practicing law, he was working on Robert Kennedy's presidential campaign. Kennedy was also a lawyer, serving as Attorney General of the United States from 1961 to 1964. During his tenure, convictions against organized crime figures soared 800%.

On May 28, 1968, Kennedy sent a personal letter to Aguirre about the unique role lawyers played in changing the country. The letter gave Aguirre a renewed sense of purpose, a feeling that his work actually meant something. Eight days later, Kennedy was shot at the Ambassador Hotel in Los Angeles. He died the next day on June 6 - exactly two years after his Cape Town speech.

Kennedy's death was a stunning blow, but Aguirre continued searching for ways to answer Kennedy's call to public service. He moved to Fresno to become a public defender, where he gained valuable trial experience. Several years later, Aguirre moved to San Diego to open his own firm.

Aguirre's first big case came in 1978, when Pacific Southwest Airlines Flight 182 crashed into a small Cessna plane during a landing gone horribly wrong. With 144 people killed, it was the worst aviation disaster in US history at the time. The plane crashed in the North Park neighborhood of San Diego, killing nine people in their houses, including two children. Neighbors rushed outside to find body parts scattered across the street and their yards. Aguirre argued that PSA was at fault, pointing out the flight crew was warned three times about the Cessna, and yet they failed to tell air traffic controllers they had lost sight of it. The National Transportation Safety Board ruled several months earlier the crash happened because of "the failure of the flight crew of Flight 182 to comply with provisions to maintain visual separation clearance, including the requirement to inform the controller when they no longer had the other aircraft in sight." Aguirre won a $3 million settlement for victims' families.

After the PSA case, Aguirre decided to focus on construction-defect litigation. His largest victory was against Manville Corporation, which was selling a deficient stucco product that damaged homes. He won a $7.5 million settlement. Aguirre's key decision was asking the judge to require Manville to post a $9 million bond, which would secure the settlement, arguing they were on the brink of bankruptcy. Aguirre did this because he saw that Manville had recently moved 75% of its assets into a handful of shell companies. He thought this was a suspicious move and a possible sign they were trying to avoid unsecured creditors like the clients he was representing.

Two months later, Manville filed for bankruptcy, citing the overwhelming number of lawsuits from workers suing it for illnesses caused by asbestos exposure. There were 12,000 other lawsuits that got delayed for 6 years, and these plaintiffs may have gotten cheated by Manville's shell companies that shielded assets from liability. Aguirre knew that a favorable verdict wasn't the end - it's not a victory until the money is in the bank. His foresight allowed his clients to get millions by avoiding Manville's shell game.

During his private sector career, Aguirre successfully argued 95 cases involving more than $200 million in awards. After twenty years of this, Aguirre grew tired of it. He had made enough money. Now he was divorced and restless. Aguirre traveled the world, particularly Russia and Spain, where he met his future wife, Maria.

From Spain, he watched the 2000 presidential election drama and the chaos that followed with the Bush v. Gore case. We are a nation capable of developing the internet and atomic warfare. We could even land a man on the moon. But creating a foolproof election process, despite over 200 years of practice, remains an insurmountable feat. His wife saw his amazement and renewed interest in his old career. She told him, "you're not done with law yet. It's not out of your system."

Not only did Aguirre have more law in his system - he was just getting started.

Aguirre returned to the United States with his wife and decided to pursue securities litigation. After earning a degree at Georgetown, he applied to work at the SEC. Then he applied again. Aguirre applied 23 times and was rejected each time. During his application process, Aguirre received top ratings in the categories of reasoning ability, writing ability, relevant work experience, enthusiasm for the SEC, and knowledge of securities law. One interviewer said Aguirre was one of the most qualified candidates he had ever interviewed. Yet they still would not hire him.

Aguirre decided to give the SEC a lesson in employment law. He filed a complaint with the Equal Employment Opportunity Commission alleging age discrimination in his application process. The SEC panicked, rescheduled another interview, and offered him a job. After making $2 million in his last few years at his own firm, his starting salary at the SEC would be $125,601, which was considered "above the minimum salary level." Aguirre accepted the offer, and on September 7, 2004, he began working at the SEC Division of Enforcement. At the age of 64, when most people are retiring, Aguirre began a new career earning just 6% of his previous compensation. Aguirre was in, and it wouldn't be his last showdown with the SEC.

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Art Samberg founded Pequot Capital in 1998 and led the fund with his larger than life personality. Pequot grew until it became the largest hedge fund in the world with over $15 billion of assets under management. In March 2000, just as the boom in technology stocks was at its peak and two Pequot funds were up more than 100% in one year, Samberg celebrated his 59th birthday by climbing Mount Kilimanjaro. As he peered out at the horizon from 16,000 feet, all he could see were clouds, higher stock prices, and higher profits for Pequot.

The market had been unusually volatile for several months, but investors just considered this a precursor of even higher prices. However, the weeks dragged on, and the new highs in the market struggled to last for more than a few hours.

March 10, 2000 marked the beginning of the end - the moment when the stairway to stock market heaven turned into a one-way elevator to oblivion. The NASDAQ index, dominated by technology companies with zero profits and sky-high stock prices, nosedived as investors faced a wave of margin calls. Major Wall Street players and hedge funds of all types waded through the carnage.

One day in September, Samberg was playing tennis to escape the screens flashing red with losses. After a few sets, he was light-headed and felt a raging tightness in his chest. He tried to continue the match, but his friend, who was an EMT, said no and immediately drove him to a hospital.

Samberg stared at the ceiling of his room in Westchester County Medical Center. He turned his head to watch the green line on the heart monitor twitch erratically. Something had changed in the last six months. The pulse of the market was different. His heart convulsed as his profits dropped, one tick at a time. Markets had turned from money machines to widowmakers, and Pequot couldn't make money simply by riding the gravy train up the momentum mountain. He needed an edge - information that no one else on Wall Street knew about yet.

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On January 30, 2002, the New York Stock Exchange contacted the SEC's Division of Enforcement to notify them about some suspicious trades made by Pequot. The SEC took no action until a month after Aguirre was hired in 2004, when they assigned him as lead investigator on the case - and by lead investigator, I mean the only investigator. Aguirre was the only staff attorney working on the Pequot case full time. Only a few others from the Office of Market Surveillance provided part-time assistance, and he shared one paralegal with several investigators who were working on other cases. Meanwhile, Fried Frank, Pequot's law firm, said it had 59 attorneys and paralegals working on the case 60 hours per week. The SEC had sent one man to fight an army.

The SEC attorneys providing part-time assistance were intimidated by Fried Frank, referring to them in internal emails as "the most sophisticated guys around." On February 25, 2005, James Fay, Senior Counsel at the SEC, sent an email to Eric Ribelin, who was on the Market Surveillance team, "When push comes to shove, no one in the SEC is going to take on FF or any other major player." Ribelin replied, "You may be right, but I'll tell you a record is getting built." He was right. These emails would eventually appear before Congress. Exhibit Number 15, or "How Not To Run A Case."

The trading happened back in 2001. It was now 2004. From Pequot's perspective, this was simply ancient history. The investigative delay gives you an idea of how the SEC really works: A crook can commit securities fraud, and after three years of touring the Bahamas on his yacht, some guy in the back office of a government building says, "Hey, maybe we should look at this." At that point, they'll be lucky to conclude the case before the five-year statute of limitations for criminal enforcement actions expires. If you ever wondered how a "wolf" of Wall Street can last for so long, now you know why: the SEC gives them a three-year running head start.

The Pequot trading focused on a single corporate event: General Electric's financial subsidiary, GE Capital, announced it was buying Heller Financial for $5.3 billion. This move caught investors off guard, and after the announcement, Heller Financial stock skyrocketed 47% in one day. General Electric stock dropped 2% as investors assessed the impact the buyout would have on its financial condition.

It seemed like no one was expecting this deal, which is why it was strange that Pequot Capital would buy 1,148,200 shares of Heller while shorting 1,537,300 shares of General Electric several weeks before the announcement. Samberg was so eager to buy the shares that on July 11, 2001, he sought to purchase more than double the amount of shares that usually trade on an average day. He wasn't able to buy as many shares as he wanted, but his trades still accounted for 58% of the volume in the stock that day. Samberg spent the entire month of July buying Heller. He single-handedly purchased 1 out of every 5 shares that traded that month. This was clearly a man on a mission.

But why Heller? Aguirre describes how the trade came out of the blue, "There were no e-mails, there were no reports, there was no research, no contact with any companies, no contact with third parties. There was just nothing. One day this guy just says, 'Heller Financial!'" When Samberg testified on May 3, 2005, he provided a list of reasons to the SEC about why he decided to buy Heller stock. In another testimony a month later, Aguirre cross-examined Samberg, and it became apparent that all the reasons he listed were simply bullet points from a Legg Mason analyst report that Samberg had reviewed just prior to his initial testimony. Under cross-examination, Samberg admitted he did not read the report before placing the trades because it was "sell-side research," which he had publicly stated was "not worth a damn." With the Samberg narrative falling apart, Aguirre had no doubt about what took place, and it was simply a matter of gathering the evidence he needed.

The next target was obvious: John Mack.

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Mack first met Samberg in 1992, when Byron Wien, one of the most influential people on Wall Street, introduced them. Mack, a senior Morgan Stanley executive, was looking for someone to invest his money, and he decided Pequot Capital provided the best opportunity. Mack became President of Morgan Stanley in 1997 and earned the nickname "Mack the Knife" because of cost-cutting measures. At 6 feet and 220 pounds, he posed a formidable presence. Mack was a star linebacker at Duke University, where he attended on a football scholarship. His 29-year career at Morgan Stanley came under severe pressure after a merger with Dean Witter, and he left in March 2001 after a power struggle with Phil Purcell, the CEO of Dean Witter who was now CEO of the combined company.

Just one month after Mack left, Morgan Stanley began formal discussions with General Electric about playing an advisory role for a potential buyout of Heller. On June 26, Mack flew to Switzerland to meet with Credit Suisse about possibly becoming CEO. Credit Suisse was advising Heller on the buyout. Mack's former employer and his potential new employer were working on opposite sides of the same deal.

As soon as Mack returned, he called Samberg on June 29, 2001. The next day, Samberg allowed Mack to invest $5 million in "Fresh Start," a start-up company that Pequot was invested in. Mack was the only individual investor allowed to participate in the deal, and he eventually more than tripled his money within a year, turning $5 million into $16.4 million. On Monday, July 2, the first trading day since he spoke with Mack about the Fresh Start investment, Samberg began aggressively buying Heller stock despite never doing any previous research on it. On July 12, Mack became CEO of Credit Suisse. On July 30, General Electric announced they were buying Heller, and Samberg immediately dumped all his Heller stock. He made $18 million in one day.

This was enough for Aguirre. He wanted to subpoena Mack. Aguirre approached his supervisor, Robert Hanson, about pursuing him. Hanson warned Aguirre that Mack had "juice," meaning his attorneys could directly contact the Director of Enforcement to appeal the subpoena. Hanson also told Aguirre that Mack had "powerful political connections," implying that any attempt to go after him would be futile. When Hanson testified before Congress in 2006, a senator asked him about this comment. Hanson denied it, saying he did not remember saying it. But he hedged himself - perhaps in case a damning recording came to light - by saying that it was possible he had made the comment, "That doesn't sound like something I would say. It's possible, but it doesn't sound like something I would say." These are the kinds of non-definitive answers that are every lawyer's wet dream.

Hanson had good reason to worry. Mack was known as a "Bush Ranger" for his campaigning and financial support of George Bush in the 2004 election. He was eager to play both sides, as he also raised money for Hillary Clinton in her 2008 campaign. Mack said it was important for senior staff at Morgan Stanley to be involved in the political process. He noted that Clinton has a "deep understanding" of the "issues important to Morgan Stanley." Mack was well-connected politically, using his fundraising activities to build a deep web of alliances.

After a long career at Morgan Stanley and several years at Credit Suisse, Mack wanted to return to Morgan Stanley as CEO. While waiting for the opportunity to open up, he accepted a job offer from Samberg as Chairman of Pequot - the hedge fund he had allegedly tipped off with inside information. It was during this time that things really started getting out of hand.

The case played out exactly the way Hanson said it would. On June 23, 2005, Eric Dinallo, Global Head of Regulatory Affairs at Morgan Stanley, called Aguirre. He said, "Are you going to proceed against Mack? Because if you proceed against Mack, we are going to have a problem in having him step in as CEO. We do not want him to step in as CEO if there is going to be a securities case brought against him by the SEC." Aguirre said this was the day everything changed - when internal support flipped to internal resistance.

Standard procedure at the SEC is similar to the standard procedure at Fight Club, the fictional underground group introduced by the eponymous 1999 film. Rule number one is: you do not talk about Fight Club. Rule number two is: you do not talk about Fight Club. Likewise, you do not talk about pending investigations. Aguirre followed the rules.

After failing to get past Aguirre, Morgan Stanley's Board of Directors hired the law firm Debevoise & Plimpton to determine whether or not Mack was under investigation. Former U.S. Attorney Mary Jo White led the investigation for Debevoise & Plimpton. White contacted Director of Enforcement Linda Thomsen directly, while other Morgan Stanley officials made contact with Associate Director Paul Berger. Morgan Stanley was firing on all fronts to get past Aguirre and reach the highest levels of the SEC.

Thomsen demanded to see the evidence of the case immediately, and she reviewed it quickly without consulting Aguirre. Berger revealed the nature of the evidence to Debevoise. In a phone call with White on June 26, 2005, Thomsen said there was "smoke...but surely not fire." She advised White that the Morgan Stanley board should trust Mack. By revealing confidential info to a third party and by issuing a snap judgment on the expected outcome, Thomsen destroyed the entire investigation in a single phone call.

The investigation was immediately shut down, and two days later, Aguirre and Assistant Director Mark Kreitman got into an explosive argument about the case. The next day, Hanson, the one who initially warned him, gave Aguirre a positive evaluation, saying, "He has consistently gone the extra mile, and then some." But it was too late. Aguirre was a marked man.

The plot to bring down Aguirre had actually started a month earlier. On May 25, 2005, Kevin O'Rourke, an SEC trial attorney, emailed Kreitman and referred to Aguirre as a "loose cannon." On May 31, 2005, O'Rourke emailed Richard Simpson, Assistant Chief Litigation Counsel, about Aguirre, calling him "very dedicated and quite skilled," but he said Aguirre was "a loose cannon that needs to be supervised." O'Rourke was providing part-time assistance to Aguirre on the Pequot investigation, but what Aguirre didn't know was that O'Rourke had defended the SEC in Aguirre's age discrimination complaint to the Equal Employment Opportunity Commission. O'Rourke never disclosed this conflict of interest to Aguirre while he was providing assistance to him in the Pequot investigation. While assisting him, O'Rourke was denigrating him to superiors behind his back, which raises questions if he was trying to sabotage the entire investigation.

On August 18, 2005, Aguirre received a merit-based raise - a sort of Judas kiss. A week later, Kreitman was issuing a proposal that Aguirre should be fired. On September 1, 2005, the hammer dropped, and Director of Enforcement Linda Thomsen sent Aguirre a termination notice. She said he exhibited a "demonstrated inability to work effectively with other staff members" and had an "unwillingness to operate within the Securities and Exchange Commission process."

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Perhaps Aguirre was playing the wrong game. If only he had followed Thomsen's example, he might be getting promoted instead of fired. Thomsen was willing to work effectively not just with the SEC staff, but with unauthorized third parties as well. Thomsen demonstrated extraordinary ability to operate within the Securities and Exchange Commission process, which was actually a perpetual revolving door between the Commission and private law firms.

Before working at the SEC, Thomsen worked at Davis Polk & Wardwell. Thomsen resigned from the SEC on February 9, 2009, just five days after testifying before Congress about why the SEC failed to detect the $65 billion Bernard Madoff fraud. New York Representative Gary Ackerman said, "We thought the enemy was Mr. Madoff. I think it is you." Harry Markopolos, the whistleblower who repeatedly warned the SEC about Madoff, said, "The financial illiteracy among the SEC's securities lawyers was pretty much universal with few exceptions." After leaving the SEC, Thomsen returned to Davis Polk as a partner, where she would defend clients against the SEC.

Nine months after Aguirre was fired, Associate Director Paul Berger left the SEC and became a partner at Debevoise & Plimpton - the law firm he had leaked info to about the Pequot investigation. Compromise federal investigations; get promoted to the private sector. This is the game - that revolving door on the path to success.

On April 10, 2013, Mary Jo White, who led the fact-finding mission for Debevoise & Plimpton on behalf of Morgan Stanley, became Chairwoman of the SEC. The leakee turned boss. Also, White's husband is a lawyer at Cravath, Swaine & Moore, another heavy hitter. During her tenure at the SEC, White had to recuse herself from over four dozen cases. The Chairwoman was so conflicted she could barely do her job. After she resigned in January 2017, she became Senior Chair at.....Debevoise & Plimpton.

Aguirre wasn't facing a few conspiring co-workers. He was facing an entire system of corruption, a carousel of attorneys circling around and around along the conflicted career path of the modern lawyer. But Aguirre wasn't some amateur. He was a veteran who had more experience than everyone at the SEC. They didn't reject Aguirre's application 23 times because he was too old. They rejected him because he was too good. Aguirre was simply too persistent, too effective, and too clever for the SEC. This wasn't a man who was willing to play the revolving door game. Not only was he refusing to play, he was going to smash the revolving door into a million pieces in front of Congress. They had ambushed the wrong guy, and now, he was going to expose them all.

On January 20, 2006, Aguirre filed a 56-page Office of Special Counsel Complaint against the SEC, several of its Commissioners, and his superiors. In June 2006, a government official tipped off The New York Times about the fiasco, which sparked a wave of media attention. The Times called Pequot "one of the oldest and most powerful hedge funds in America," and they reported on Aguirre's claims in great detail.

After the news became public, the SEC had to at least create an appearance of activity. Assistant Director Mark Kreitman re-opened the investigation and finally sought testimony from John Mack and some Credit Suisse executives. However, Kreitman told the attorney on the case, "You don't need to prepare that much for it." This wasn't a real investigation after all - just the usual clown show.

The five-year statute of limitations for the trade ended on July 27, 2006. When did the SEC schedule the Mack testimony? August 1, 2006 - five days after the expiration. The testimony was a meaningless exercise at that point. During the Congressional hearing, Pennsylvania Senator Arlen Specter asked Hanson, Aguirre's boss, why they waited until after the statute of limitations expired to question Mack. Hanson evaded the question and simply stated, "We took Mr. Mack's testimony, as I described in my written statement, which I will ask to be made part of the record." Specter persisted, "But that does not tell us why you waited until after the statute of limitations had expired." Hanson replied, "We got to it as soon as we could." Imagine trying to tell someone with a straight face that you were five years late to doing your job, when you fired the very person who was trying to do that job.

The Mack testimony was filled with ambiguous answers. When asked if Credit Suisse told him any information about the Heller deal, Mack replied, "Not that I remember." If there were ever conflicting testimony from anyone else, Mack could fall back on his poor memory. I'm sure his memory was truly awful. The CEO of a major investment bank never has to remember anything important, particularly information about a multi-million dollar deal. Something like that can easily slip one's mind, especially after the statute of limitations expires.

On November 30, 2006, the SEC closed the Pequot investigation. In 2008, David Kotz, the inspector general of the SEC, criticized the agency's initial Pequot inquiry, saying that he found evidence that "raised serious questions about the impartiality and fairness" of the SEC's investigation.

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Pequot was lulled into a false sense of security. It wasn't over yet. While the five-year statute of limitations for criminal enforcement actions had expired, civil cases were still fair game. (The Supreme Court has since tightened this rule to include civil actions in a controversial ruling last year). After getting humiliated in front of Congress in 2009, the SEC took a second look at Pequot. The Heller case was only one of over 20 suspicious trades by Pequot that the New York Stock Exchange had flagged for further review. Aguirre wasn't given the resources to investigate all of them. After multiple Congressional hearings, the SEC was looking to re-establish credibility, and they finally properly reviewed the evidence that had been handed to them on a silver platter eight years ago.

The new investigation focused on a series of trades in Microsoft stock options. Pequot purchased 21,000 call options on Microsoft, which would generate profits if the stock went up quickly in a short amount of time. On April 19, 2001, Microsoft announced it beat its earnings estimates, and Pequot made $14.7 million in one day. Pequot didn't profit from insightful analysis into Microsoft's situation. Rather, it manipulated a Microsoft employee into providing them with material non-public information by appealing to his career ambitions: in exchange for this information, they would offer him a Vice President job at their prestigious hedge fund. But it was a lie. After getting the information they needed, they fired him several months later, wrecking his career.

David Zilkha was a product manager at Microsoft and wanted to start a career in investment management. On January 18, 2001, he interviewed with Pequot with the hopes of getting an analyst job. Samberg was already plotting the scheme: Instead of offering him an analyst job, he offered Zilkha, someone with zero experience in investment management, a Vice President position with a $250,000 salary and $250,000 minimum bonus. Zilkha, who was later diagnosed as having severe narcissistic personality disorder in a court-ordered mental evaluation, fell right into the trap. After extending the offer on February 28, 2001, Samberg emailed Zilkha that same night, "i'm not as impressed with our research on msft. do you have any current views that could be helpful? Might as well pick your brain before you go on the payroll!!" Zilkha replied, "the worst is over for Microsoft."

For a period of two weeks, from April 23 to May 7, Zilkha was double dipping: he was an employee of both Microsoft and Pequot. Zilkha, lacking any sense of caution, used his Microsoft work email address to email two colleagues, "Any ideas on how the quarter has shaped up for MSFT?" He also emailed his neighbor and colleague Mark Spain, a regional technology specialist in Microsoft's US Sales and Services division, "Have you heard whether we will miss estimates? Any other info?" Spain replied, "march was the best march of record."

On April 23, after raking in millions from the illicit trading, Samberg emailed two of his colleagues, "our new guy, david zilkha, is in ct today. Check him out. He's already got a great p&l; based on his msft input." Zilkha received a complimentary email from a managing director at Pequot, who stated, "I am sitting here with 'the great one' aka art [Samberg]; who says we've made more money in msft in the last month than in the entire seven years before that!" The praise was all temporary however. On November 16, 2001, Pequot gave Zilkha the boot. When his Microsoft employment ended, so did his stream of inside information, and now, he was useless to them.

Zilkha, feeling the burn, took legal action against Pequot for wrongful termination. They reached a $2.1 million settlement. That's a lot of money for an employee with no investment management experience and only seven months tenure at the company. The $2.1 million was essentially hush money: Let's keep the Microsoft trades our little secret, and we can both go on with our lives, shall we?

The arrangement was working nicely - until Zilkha's wife, a homemaker in Connecticut, divorced him. The SEC had been looking for the smoking gun evidence for awhile. Zilkha's emails to Mark Spain were critical in closing the case. Those emails were on a computer hard drive, which Zilkha's ex-wife, Karen Kaiser, had possession of. Kaiser was fighting a bitter divorce, claiming that Zilkha had once punched her in the face. In January 2009, Mark Sherman, Kaiser's divorce lawyer, who was already suspicious of the $2.1 million settlement that Pequot had paid Zilkha, found the emails on the hard drive and realized their potential significance. After discussing it with Karen and her husband Glen, they delivered the evidence to the SEC. For their critical contribution to the case, the SEC paid the Kaisers a $1 million whistleblower award.

On May 28, 2009, Pequot announced it was shutting down operations. The SEC fined Pequot and Samberg a total of $28 million. As part of his settlement with the SEC, Samberg agreed to be barred from association with an investment adviser. Zilkha was fined $2.5 million, which was the sum of his hush money settlement, his salary, and his bonus.

After years of fighting, Aguirre's efforts had finally paid off. A lone attorney took on the SEC, and, with the help of a battered housewife, took down the largest hedge fund in the world.

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John Mack announced his retirement as CEO of Morgan Stanley several months after Pequot shut down, but his record remains free of any official charges. Mack continues to sit on the board of many prestigious institutions. Art Samberg remains active in the markets through his family office, Hawkes Financial. Zilkha also manages money via a family office.

On June 29, 2010, the SEC agreed to pay Aguirre $755,000 for his wrongful termination lawsuit. Aguirre said, "I think it's fair to the public that the SEC pays for my work over the past four years and ten months, since it generated $28 million to the U.S. Treasury."

Aguirre returned to private practice in San Diego, specializing in whistleblower cases. He is not your average whistleblower attorney. Aguirre said,

"I saw Wall Street's dark side up close in 2005 when I led the SEC's investigation into insider trading by the world's largest hedge fund and Wall Street mega banks. They retained the best: 8 powerful Wall Street law firms, over 70 lawyers, including a future SEC Chair, a White House Counsel, and three former SEC Enforcement chiefs. After pleas from a Wall Street bank, the SEC Enforcement chief blocked my subpoena to the suspected tipper, the bank's incoming CEO. When I pushed back, the SEC fired me. Representing myself, I fought back and beat the SEC, the fund, the bank, and their attorneys in proceedings before two Senate Committees, a federal court, and three federal agencies."

As usual, Gary Aguirre is slightly overqualified.

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Aguirre was on summer vacation again. He laid on the sand and looked down at the paper beneath his glasses, his eyes slowly moving side to side, ".....unwillingness to operate within SEC process.....your conduct was inappropriate.....ignored the chain of command....."

Aguirre looked up and smiled.