Why Regulators Have A Hard Time Charging Executives At Prominent Securities Firms

A recent investigation by the Senate regarding the handling of Morgan Stanley CEO John Mack in regards to an insider trading investigation sheds light on why regulators are never able to “nail” senior level executives at major securities firms.

Former SEC attorney Gary Aguirre alleges that he was let go after insisting that he interview John Mack in 2005. Mack, at the time, was about to become Morgan Stanley’s chief executive. According to Aguirre, his superiors were hesitant to challenge the soon-to-be head honcho, and the SEC dropped the insider trading case, which also involved Pequot Capital Management Inc., due to insufficient evidence last year.

SEC branch chief Robert Hanson, Aguirre’s former boss, has told the Senate that he knew that lawyers representing Mack would likely contact Hanson’s superiors. Hanson says he would not have minded going up against Mack, but that more preparation and work had been needed to keep Hanson’s superiors in the loop-although, apparently, SEC officials already knew what was going on.

Aguirre has told the Senate Committee that documents he had subpoenaed from Morgan Stanley were sent directly by the firm’s attorney to Linda Thomsen, the SEC enforcement head, instead of him.

According to SEC market surveillance branch chief Eric Ribelin, Hanson told him that the SEC would have to be careful with the way they dealt with Mack’s testimony because he was a prominent person. Ribelin says his proposal to ask Mack “a couple of questions” were met with no response by Hanson.

At least three of Aguirre’s former SEC colleagues, including Surveillance Unit Chief Joseph Cella, have agreed that interviewing Mack should have occurred sooner instead of later.

Mack was interviewed in 2006 after Aguirre was let go and when the statute of limitations for pressing charges against him had passed.

At Shepherd Smith and Edwards, our attorneys and other staff members have a combined 100 years of experience in the securities industry and securities regulation. Our legal team is committed to helping investors anywhere in the United States recover losses resulting from actions by firms and their stockbrokers that are not in compliance with the laws. Contact Shepherd Smith and Edwards today for your free consultation.

Related Web Resource:

Securities and Exchange Commission

SEC Clears John Mack, CFO.com, Dec 1, 2006

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