NEW YORK — Arthur Samberg's Pequot Capital Management Inc. is liquidating its core hedge fund amid an investigation into potential insider trading, according to a letter to investors obtained by The Wall Street Journal.
The Securities and Exchange Commission has been examining whether Pequot traded Microsoft Corp. shares on confidential information provided by a former employee of the computer company who was later hired by Pequot.
Pequot has denied any wrongdoing, but the paper said Samberg's letter, sent to investors late Wednesday, explains that the probe has "cast a cloud over the firm" and become a personal distraction. The Westport, Conn.-based investment firm did not respond to a call for comment.
According to the letter obtained by The Journal, Pequot will spin out its Matawin and Special Opportunities funds, while liquidating its core funds. Samberg noted that the Pequot Partners Fund generated a net annualized return of 1.8 percent this year through April 30.
SEC spokesman John Nester declined to comment Wednesday.
After closing the case more than two years ago, the SEC reopened its probe after new information surfaced late last year showing payments Pequot made to a key witness.
The documents, which emerged in a divorce proceeding, showed that Pequot began paying $2.1 million to former Microsoft employee David Zilkha in mid-2007. The initial $700,000 payment was made around the time Sens. Charles Grassley, R-Iowa, and Arlen Specter, R-Pa., were urging the SEC to reopen the case.
Zilkha received a second $700,000 payment last year and was slated to receive the same amount this year.
A Pequot spokesman has said the payments were related to the settlement of a civil claim concerning Zilkha's employment and termination.
According to the paper, Pequot now manages about $3 billion in assets, down from its peak of $15 billion.