2nd Official Dissented Over Pequot Inquiry

Congressional investigators have found that a second official at the Securities and Exchange Commission expressed serious concerns about how the agency was conducting its inquiry into a prominent hedge fund, Pequot Capital Management.

The official, Eric Ribelin, an investigator at the commission, asked to be removed from the Pequot inquiry because of his serious misgivings about decisions being made on the case by senior S.E.C. officials, according to a government official who spoke on condition of anonymity because he is not authorized to discuss the matter.

Mr. Ribelin believed that the inquiry was not handled right, Senator Arlen Specter, the chairman of the Judiciary Committee, said in an interview. The investigators criticism echoes some of the complaints lodged this year by the former S.E.C. lawyer who ran the investigation, Gary J. Aguirre.

Something smells rotten here, Mr. Ribelin wrote in an e-mail message to an S.E.C. supervisor last year.

He is among those expected to testify today before Senator Specters committee, which, together with the Senate Finance Committee, has been examining allegations by Mr. Aguirre that the agency prematurely halted its Pequot investigation because of outside political pressure.

Mr. Aguirre, who led the hedge fund investigation until he was fired last year, has told members of Congress that senior S.E.C. officials blocked him from taking testimony from John J. Mack, an influential Wall Street executive and friend of Pequots founder, Arthur J. Samberg.

S.E.C. officials said they turned down Mr. Aguirres request at that time because he had not made a strong enough case for taking Mr. Macks testimony, records show. The S.E.C. took Mr. Macks testimony about a year later, and formally closed the Pequot investigation last week without taking any enforcement action. Mr. Samberg and Mr. Mack have repeatedly denied any improper conduct.

Mr. Ribelin did not return a message left at his office yesterday.

An S.E.C. spokesman, John J. Nester, declined to comment, saying, Well just let our testimony speak for itself.

Senator Specter, a Pennsylvania Republican, said he was interested in finding out why S.E.C. officials, who had previously written favorable evaluations of Mr. Aguirres work, suddenly wrote a critical evaluation that covered the same time period.

The supplemental evaluation was highly unusual, Senator Specter said.

Government officials said the S.E.C. supervisors never discussed the evaluation with Mr. Aguirre and then placed it in his employment file after he was fired on Sept. 1, 2005.

Just days before his firing, Mr. Aguirre was awarded a two-step merit pay increase.

According to a government official, Mr. Aguirres direct supervisor, Robert Hanson, an S.E.C. branch chief, said the supplemental evaluation was written at the suggestion of Paul R. Berger, a former associate director of enforcement. Mr. Berger declined to discuss the evaluation yesterday, saying he could not comment on personnel matters.

Senate investigators have also been looking at circumstances surrounding Mr. Bergers decision to take a job at the law firm of Debevoise & Plimpton this year.

Debevoise was hired by Morgan Stanleys board to vet Mr. Mack before he was named to head the company in June 2005. As part of that vetting process, Mary Jo White, the former New York federal prosecutor now at Debevoise, did contact the S.E.C.s director of enforcement, Linda Thomsen, about Mr. Mack, but the firm says it never suggested to anyone at the commission that the investigation be stopped.

Mr. Aguirre has told Congress that after a compliance officer at Morgan Stanley called the S.E.C. in June of 2005, inquiring whether Mr. Mack might face an enforcement action, Mr. Aguirres Pequot investigation was essentially shut down.

Mr. Aguirre said that before answering the compliance officer, he consulted with his two superiors, Mr. Hanson and Mark Kreitman, an assistant director of enforcement. According to Mr. Aguirre, Mr. Kreitman favored telling Morgan Stanley that Mr. Mack was indeed a target, but first he informed his boss, Mr. Berger, by speakerphone.

With Mr. Aguirre listening in, Mr. Berger overruled Mr. Kreitman, saying in effect that the S.E.C. would most likely not file charges against Mr. Mack, and that nothing should be said to Morgan Stanley, Mr. Aguirre said.

Mr. Berger said yesterday that he had told Morgan Stanley that it was premature to say whether or not Mr. Mack had any exposure.

Several months later, Mr. Berger said, an S.E.C. colleague who was interviewing at Debevoise offered to mention that Mr. Berger might have an interest in working there, too. Mr. Berger agreed.

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