When the Securities & Exchange Commission announced its insider-trading settlement today with Arthur Samberg and his former $15 billion hedge fund, Pequot Capital Management, the SEC made special mention of the fact that the first direct evidence of insider trading came from a computer hard drive that was in the possession of Karen Zilkha, ex-wife of a former Pequot employee.  The SEC today charged Pequot Capital and Samberg with insider trading for trading on non-public information related to Microsoft. Pequot and Samberg agreed to pay nearly $28 million as part of a settlement. Samberg has had to shut down Pequot because of the insider-trading issue. The SEC also brought a separate enforcement action against David Zilkha, the ex-husband of Karen Zilka. David Zilkha is a former Microsoft employee who went to work for Pequot, and, according to the SEC, tipped the firm and Samberg about Microsoft’s earnings. This all happened in 2001 and the SEC tried and failed to bring a case a few years ago. The SEC now says that is because David Zilkha did not produce or disclose some key emails he had received from a Microsoft colleague concerning Microsoft’s earnings, despite subpoenas and direct questions requiring him to do so.  But in January 2009 SEC enforcement staff did get copies of those emails that had been located on a computer hard drive that was in the possession of Karen Zilkha. Karen Zilkha had been involved in a nasty divorce proceeding with David Zilkha.  According to the SEC complaint, David Zilkha emailed two Microsoft colleagues and asked for information about Microsoft’s earnings results. “Any ideas on how the quarter shaped up,” he asked in one of those emails. In another email to Mark Spain, a regional Microsoft technology specialist, David Zilkha asked: “Any visibility on the recent quarter?” Spain later replied, according the SEC complaint, that Microsoft was “on track” to meet earnings estimates. David Zilkha then communicated this information to Samberg who traded on it, says the SEC complaint. A lawyer representing Karen Zilkha could not be reached for comment.
The key emails that made the SEC's case against Pequot and Arthur Samberg came from a hard drive in Karen Zilkha's possession.