Spooky Economy

   Transparency and Knowledge Dispel Fear

Gary Aguirre already had a full professional life as a California trial attorney [1@4:13]. But in his 60s, he decided to go back to school to obtain a second law degree in securities law [1@4:30][2]. “I looked back on my career and found something missing. I was missing the public service part. I felt that I just wasn't done yet.” [2]

In September 2004, after graduating with his second degree, he was hired as a fraud investigator by the U.S. Securities and Exchange Commission (SEC) [2] . One of his first jobs there was to look into stock trading by a hedge fund called “Pequot Capital Management” [3][1@4:48]. The SEC had a collection of 17 “suspicious” transactions that had been reported to the agency. In particular, officials of the New York Stock Exchange thought it was suspicious how Pequot suddenly made $18 million [3] on a certain stock purchase. Aguirre was told to investigate it [1@4:48][6]

It appeared that Pequot Capitol had purchased a lot of stock in a company just before that company was bought by General Electric [6]. When the purchase was announced a few days later, the stock shot up. Did someone tip off Pequot that GE was going to buy that company? This led Aguirre to suspect “insider trading” [6], the making of money from information that is not public.

Aguirre followed the trail and, after getting some additional information together, he called in the people from Pequot for questioning. The investigation also led him to a person named John Mack, currently the CEO of Morgan Stanley, a global financial services company. Aguirre thought that Mack might have provided Pequot the inside information. [1@5:16]

Aguirre went to his supervisors and told them he was going to call in Mack for questioning. At first, his supervisors were interested [3] and agreeable to Aguirre's line of thinking [1@5:49]. But then, they were suddenly against it [3].

“I informed my supervisor that I intended to issue a subpoena to Mr. Mack, and he told me that he could not authorize the issuance of the subpoena for Mr. Mack because of Mr. Mack's power political connections.” [1@6:20][3][6][13]

Aguirre pressed his bosses for the subpoena but the investigation got more and more bogged down. [3] Aguirre was told to go on a vacation.

Just before he was supposed to return from his vacation, Aguirre got a phone call telling him he was fired. [1@6:55][2] The reason was that he was “difficult to work with” [1@7:51], even though he had just received a good evaluation and a two-level pay increase [1@7:21][6] for his work on the case.

The SEC completed the investigation. They closed it saying that there was no evidence of wrongdoing by either Pequot or Mack. [1@8:50][6]

A spokesman for Mack said that Aguirre “continues to make irresponsible allegations without producing any evidence whatsoever.” [1@9:12][3] The Pequot case was reopened but it ultimately resulted only in recommendations [2].

Aguirre believed that a “cover-up” was taking place [2] so he contacted Congress. His concern found it's way to Senator Charles Grassley [2]. Grassley became very interested and said that he has taken Aguirre and his information very seriously. [1@8:45] Grassley began to probe into how the SEC was handling Aguirre's case and the SEC's conduct for not taking more interest in Aguirre's information. [7][11][12][3][6]

Senator Arlen Spector reviewed Aguirre's information and said that he thought the SEC investigation might be a possible “cover-up”. [1@9:20]

In the mean time, Aguirre had sued for wrongful termination by the SEC. There was an agreement to pay him $2.1 million, but after being interviewed for a Forbes Magazine article [14], the settlement was cancelled. [9]

Finally, on June 29, 2010, the SEC agreed to pay Aguirre four years and 10 months of salary and attorney's fees in exchange for dismissing his claims. [10]

Today, Aguirre has his own law firm where he works protect his clients against securities fraud. [citation]

Aguirre believes that the SEC is representative of how government agencies have gone from being watchdogs to being the secret protectors of those they are supposed to be watching. [2][14]

Aguirre also commented that a recently passed financial regulation law is being used by the SEC to block the public's access to SEC records. “It allows the SEC to block the public's access to virtually all SEC records” and “it is hard to imagine how the bill could be more counterproductive.” [4] It was access to the SEC records that helped Aguirre win his settlement against the SEC. [4]

Quotes

“I informed my supervisor that I intended to issue a subpoena to Mr. Mack, and he told me that he could not authorize the issuance of the subpoena for Mr. Mack because of Mr. Mack's power political connections.” [1@6:20]
“It's a tilted playing field... It's tilted against all investors that are honest, that are playing the game by the rules.” [1@9:32]
"I was just following an evidence trail, and it led to that door. The logical thing was to knock on the door and try to find out what was behind it." [1@5:58]
“I never dreamed that the SEC, with it's mission of protecting investors, would block an investigation the way they did.” [1@4:00]
“The financial markets have been operating like a casino, at a magnitude that makes Las Vegas look like a miniature-golf game. Gigantic gambling going on, in the trillions of dollars.” [2]
“It’s a fusion of government with the greediest interests of the society.” [2]
“[Is] the SEC adequately protecting the nation's capital markets and their participants from the risk of manipulation and fraud by the nation's 11,500 hedge funds? The answer is 'no'” [5]
“Powerful interests want the SEC to stay just the way it is or, better yet, to become even weaker... Those interests know how to reward friends and punish perceived enemies.” [5]

Personal Concerns

Aguirre was fired from his job as an SEC fraud investigator. [3] Aguirre was portrayed as a “basket case” [10] and as being “difficult to work with” [1@7:51]

Proposed Solutions

No specific recommendations were found.

Resources

  1. Video: PBS NOW – Interview of Gary Aguirre [April 13, 2007]

    URL: http://www.pbs.org/now/shows/315/
  2. Document: The Devil and Gary Aguirre [ August 2008]
    URL: http://www.sandiegomagazine.com/media/San-Diego-Magazine/August-2008/The-Devil-and-Gary-Aguirre/
  3. Document: S.E.C. Inquiry on Hedge Fund Draws Scrutiny
    URL: http://www.nytimes.com/2006/10/22/business/22hedge.html?_r=1
  4. Document: SEC Says New Financial Regulation Law Exempts it From Public Disclosure
    URL: http://www.foxbusiness.com/markets/2010/07/28/sec-says-new-finreg-law-exempts-public-disclosure/?test=latestnews
  5. Document: Wall Street Captures the SEC
    URL: http://www.deepcapture.com/wall-street-captures-the-sec/
  6. Document: Senate report faults SEC on hedge fund probe
    URL: http://uk.reuters.com/article/idUKN0440750520070804
  7. Document: Letter from Senator Charles Grassley
    URL: http://grassley.senate.gov/about/upload/2010-08-24-Letter-to-SEC.pdf
  8. Document: Think that the SEC Is Corrupt? Meet Gary Aguirre.
    URL: http://www.davemanuel.com/2007/08/07/think-that-the-sec-is-corrupt-meet-gary-aguirre/
  9. Document: Whistle-blower Claims New Retaliation By SEC
    URL: http://www.forbes.com/2009/06/02/sec-gary-aguirre-business-beltway-sec.html
  10. Document: SEC settles with Gary Aguirre over firing during Pequot Capital Management probe
    URL: http://www.washingtonpost.com/wp-dyn/content/article/2010/06/29/AR2010062904955.html
  11. Document: Opening State of U.S. Senator Charles Grassley of Iowa
    URL: http://finance.senate.gov/newsroom/chairman/release/?id=a53a6f73-f0ce-402e-aea3-e99e8c98b3a1
  12. Document: Press Release from office of U.S. Senator Charles Grassley
    URL: http://finance.senate.gov/newsroom/ranking/download/?id=c5f8e2ed-f5a0-4fa3-ae19-d6a29c6999bd
  13. Document: Will Obama Keep His Promise to Federal Whistle-blowers?
    URL: http://abcnews.go.com/Blotter/story?id=8241580&page=1
  14. Watchdog Alleges Insider Trading at SEC
    URL: http://www.forbes.com/2009/05/15/sec-insider-trading-business-wall-street-sec_print.html

Added December 2, 2009 Posted February 12, 2011 Revised (n/a)

This is my opinion. It's a work in progress. I hope it's helpful.

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