$1 Million Awarded For Information Provided In Insider Trading Case

Glen and Karen Kaiser, who provided information and documents leading to the imposition and collection of civil penalties in Securities and Exchange Commission v. Pequot Capital Management, Inc., et al., Civil Action No. 3:10-CV-00831-CVD (D.Ct. D. Conn., Complaint filed May 27, 2010), have been awarded $1 million by the SEC. This is the largest award paid by the SEC for information provided in connection with an insider trading case. 

According to the SEC: SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).
 
On the same day the Commission filed the settled complaint against Pequot and Samberg in the above matter, it also issued an order instituting administrative and cease-and-desist proceedings against Zilkha in connection with the conduct described above. That matter is pending before an SEC administrative law judge.
 
The SEC approved the $1 million award to the Kaisers pursuant to Section 21A(e) of the Securities Exchange Act of 1934, which authorized the Commission, in its discretion, to grant an award of up to 10 percent of the penalties paid in a case to a person who provided information leading to the imposition of those penalties, but only in insider trading cases. That provision has since been repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added new Section 21F to the Securities Exchange Act, authorizing the Commission to award bounties to parties who provide information leading to recovery of monetary sanctions in a broader range of cases, not limited as before to civil penalties recovered in insider trading cases.