The rules are different for the big boys

It is no surprise that regulators never nail top executives at the major securities firms, despite a long list of scandals emanating from the big boys.

It is no surprise that regulators never nail top executives at the major securities firms, despite a long list of scandals emanating from the big boys.
A recent Senate investigation provides some insight into how this works.
The Senate has been looking into the case of former Securities and Exchange Commission lawyer Gary Aguirre, who claims that he was fired after demanding in 2005 to interview John Mack, who was about to become chief executive at New York-based Morgan Stanley, concerning an insider-trading case.
Mr. Aguirre claims that his superiors balked at going up against such a powerful Wall Street player.
Sure enough, last fall, the SEC dropped the insider-trading case, which involved Pequot Capital Management Inc. of Westport, Conn., for what the commission says was lack of evidence.
Mr. Aguirre’s former boss, SEC branch chief Robert Hanson, who was in part responsible for his dismissal, told the Senate that he knew that high-powered attorneys representing Mr. Mack “would likely, as is not uncommon, directly contact my superiors about [taking Mr. Mack’s] testimony” and that “any influential counsel Mr. Mack chose could easily pick up the phone and call my supervisors about the case.” Mr. Hanson said that he had no intention of shying away from talking to Mr. Mack but that going up against the executive required extra preparation and efforts to keep his own bosses in the loop.
But SEC officials already were in the loop. Mr. Aguirre told a Senate committee that documents he subpoenaed from Morgan Stanley, which should have come to him, instead were sent directly to Linda Thomsen, head of SEC enforcement, by Morgan Stanley’s lawyer, Mary Jo White, a partner at Debevoise & Plimpton LLP in New York and a former federal prosecutor.
Guardian angel
Ms. White is “very prestigious,” said assistant SEC enforcement director Mark Kreitman. “It isn’t uncommon for someone prominent to have someone intervene on their behalf,” he told the SEC’s inspector general.
Mr. Kreitman said he had to retrieve correspondence sent to Ms. Thomsen by Ms. White.
Eric Ribelin, an SEC market surveillance branch chief — who earlier had confirmed to Mr. Aguirre that Pequot’s name frequently came up with regard to suspicious trading activity — said Mr. Hanson told him “that because Mr. Mack was a prominent person or because he had connections — I don’t remember exactly how he put it — that we would have to be careful about taking his testimony, we would have to, my impression is, move maybe more carefully than we would if it was somebody other than somebody of prominence.”
Mr. Ribelin told Mr. Hanson that the SEC could simply call Mr. Mack and ask “a couple of basic questions” — something Mr. Aguirre also had proposed. “Mr. Hanson didn’t respond to me,” Mr. Ribelin testified.
In addition, “Mr. Aguirre was not allowed by Mr. Kreitman to speak to [a defense] attorney about trying to get production of e-mails,” Mr. Ribelin said. “To this day, I don’t know why that is.”
No fewer than three of Mr. Aguirre’s former SEC colleagues — all experts on trading cases — have supported his contention that Mr. Mack should have been interviewed sooner rather than later. Aside from Mr. Ribelin, former SEC investigator and insider-trading specialist Hilton Foster has backed Mr. Aguirre, telling Dow Jones & Co. Inc. of New York: “Gary Aguirre is one of the best investigators that there is.”
Joseph Cella, chief of the SEC’s market surveillance unit, also told Senate investigators that he sees no reason why Mr. Mack’s testimony should have been delayed.
Mr. Mack finally was quizzed last summer, but by then, Mr. Aguirre was long gone, and the statute of limitations on possible charges had expired.
That’s quite the picture. But then, we have always known that the rules are different for the big boys.