The SEC and the Gary Aguirre Case

Does the SEC fire its investigators when they get too close to the truth?  Gary Aguirre was one of the SEC’s best investigators, but when he tried to subpoena one of Wall Street’s major players in a fraud investigation, he found out the hard way that it’s not a good idea to rattle too many cages in Washington.

Gary Aguirre was the SEC’s Rising Star
Throughout his career, Gary Aguirre became know as a competent attorney who tackledPhil Cannella big cases and won. He won cases against Pacific Southwest Airlines and the Manville Corporation, and pioneered the field of construction defect litigation. With his experience sticking up for people who had been wronged, Aguirre’s transfer to the SEC’s enforcement division seemed only natural. At the SEC, Aguirre made it clear he would go after the big fish with the intention to prosecute, and his work there earned him glowing praise from his superiors. Why then, was Aguirre suddenly terminated while on vacation? Aguirre himself felt his firing was unlawful and sued the SEC, eventually becoming vindicated by both the courts and the U.S. Senate. Aguirre’s case revealed the SEC’s unwillingness to prosecute the financial elite as well as its history of destroying documents to cover up its lax enforcement.
Aguirre’s troubles began shortly after he started working for the SEC and during his investigation of Pequot Capital Management (Pequot). Red flags were raised when Pequot, a prominent hedge fund, made over $18 million in a single month. Aguirre noticed the tremendous profits, as well as the fact that Pequot’s CEO Arthur Samburg had been purchasing large amounts of stock in companies like Microsoft without consulting anyone else at his firm. “There was no rational explanation why this guy bought more stock than anybody else in the country during these 30 days,” said Aguirre, believing that Samburg was receiving insider information from John Mack, a top Wall Street executive who, at the time, was under consideration for a job as CEO of Morgan Stanley.

Aguirre felt he had enough information to begin building a case against Pequot and attempted to subpoena Mack for testimony in the case. Aguirre spoke to his superiors many times about the subpoena, but they refused to follow through with it, citing Mack’s political clout (he had been a major contributor to George W. Bush’s presidential campaign in 2004). Aguirre, as determined as ever, continued to pursue the case against Pequot and John Mack. It was at this point that Aguirre’s supervisor, Paul Berger, decided to give him a supplemental performance review, terminating his employment at the SEC for unsatisfactory performance. That occurred only one month after giving him a glowing review and a pay raise. After Aguirre’s termination, the case against Pequot was immediately dropped, and Berger left the SEC for a high-paying job at Debevoise & Plimpton law firm.

Aguirre had his suspicions about the reason for his termination and wrote a letter to the U.S. Senate detailing his findings in the Pequot case. Both the Senate Finance Committee and the Senate Judiciary Committee began investigating the SEC, eventually filing a joint report that found its termination of Aguirre to be illegal, a sentiment echoed by SEC Inspector General H. David Kotz in his taped interview with Crash Proof Retirement’s host Phil Cannella. Kotz acknowledged the suspicious circumstances under which Aguirre was fired, saying, “We actually conducted an investigation of Gary Aguirre’s claims and we found that there were concerns on the process in which Gary Aguirre was terminated after he had received generally good, positive performance evaluations.” Aguirre later sued the SEC and received a settlement of $755,000. Aguirre’s suit also opened up a new investigation of Pequot, which eventually led to a settlement with the SEC. Upon winning his lawsuits against the SEC, Aguirre said to The New York Times, “It’s a shame the team I worked with at the SEC did not get to complete the Pequot investigation. The filing of the case in 2005 or 2006, before the financial crisis, would have been the right message at the right moment for Wall Street elite: the SEC goes after big fish too.”