I could sit here and write this that and the other...but instead, I'll share former SEC investgator Gary Aguirre's Congressional Testimony...
In 2001, current Morgan Stanley CEO, John Mack, was a very busy man. He was working for Morgan Stanley, who was advising GE in a purchase of Heller Financial.
He was also in talks with Credit Suisse about a job, while Credit Suisse was advising Heller Financial on the buy out by GE.
He was also busy convincing Arthur Samberg, CEO of a hedge fund named Pequot, to allow him to personally invest $5 million dollars in a company that in a few short months turned into $16+ million for Mack.
John Mack was a ‘close associate’ of Mr. Samberg and an investor in Pequot. On May 11, 2001, Mr. Samberg wrote an e-mail describing Mr. Mack’s interest in making additional investments in Pequot: "John Mack would like to put $5mm into Partners [a Pequot fund] at the 1st available opening. He’d also like to put more $ into Scout [another Pequot fund], if that’s possible, and would like a recap of what he has where." On June 20, 2001, less than two weeks before Mr. Samberg started buying Heller stock, Mr. Mack lobbied Mr. Samberg for the opportunity to invest in a start-up company with the code name "Fresh Start." ... John Mack was meeting with senior officials at Credit Suisse (Credit Suisse First Boston’s parent company)[and an investment banker in the GE/Heller transaction] in Switzerland from June 26 to June 28, 2001. Upon his return, on June 29, 2001, Mr. Mack called Mr. Samberg. Two things happened after this telephone conversation. First, Mr. Mack was allowed to invest $5 million in Fresh Start. He was the only individual investor to be given this opportunity. Second, on the following Monday Mr. Samberg made large purchases of shares in Heller. Mr. Mack’s investment in Fresh Start proved to be very profitable; he more than tripled his money in less than a year. ...
Meanwhile, at the same time Mack was in contact with the players in the GE/Heller Deal, Samberg's Pequot, which Mack had millions of more $$$ invested in, made $18+ million in one month while shorting GE and buying Heller. Pequot would have made more but, there weren't enough stocks to buy or short.
Beginning on July 2, 2001, Mr. Samberg directed his traders to aggressively buy shares of Heller Financial stock. In fact, from July 2 to July 27, he attempted to purchase many more shares of Heller than his traders could safely execute without driving up the price. On six days during this period, the number of shares sought by Pequot exceeded the total volume of Heller shares traded, and on two days, the number of shares sought was more than twice Heller’s daily volume. Pequot had no position in Heller at the beginning of the month, but by July 27th, it was "long" 1,148,200 shares.
On July 25, 2001, at a time when Pequot had amassed a large long position in Heller, it began selling short General Electric ("GE") stock. Pequot shorted over 1.5 million shares of GE during the three-day period from July 25 to July 27. By the close of business on Friday, July 27, Pequot was poised to profit if the price of Heller increased or if the price of GE decreased.
On the following Monday, July 30, GE announced its plan to acquire Heller.
The Senate also came to conclusion (if an impotent one) that Mack, Samberg, Morgan Stanley and the SEC appeared to be involved in an incestuous daisy chain.
The Senate Report determined that there were several convincing reasons to suspect that John Mack told Arthur Samberg about the GE-Heller deal before that information became public: Mack was a close associate of Samberg and an investor in Pequot funds. Mack was thus in a position to share in any profits the funds might make by trading on inside information. Mack also had been in employment negotiations with a firm working on the deal at the time of the trades, which meant he might have had an opportunity to learn of the GE-Heller acquisition before the public announcement. Moreover, an e-mail from Samberg indicated that he had spoken to Mack on June 29, 2001. Samberg began directing large purchases of Heller stock on the next trading day. Nevertheless, as explained in more detail below, the SEC resisted plaintiff’s efforts to take Mr. Mack’s testimony. In fact, it was not until this matter was publicly exposed in a front-page New York Times article on June 23, 2006, that the SEC began to re-evaluate Mr. Mack as a potential tipper. Nonetheless, the SEC did not depose Mr. Mack until August 1, 2006, five days after the statute of limitations for civil and criminal penalties had expired."