Pequot closes due to investigation

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Pequot Capital, one of the largest and most highly regarded hedge funds in America, is closing. The government has been investigating the firm for insider trading violations for several years.

According toThe Wall Street Journal, Arthur Samberg, Pequot's founder, wrote a letter to his investors saying, "Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction." The paper also reports that Pequot's assets under management dropped from $15 billion in 2001 to $3 billion now.

The action raises the question of how long is too long for the SEC and other government agencies to examine potentially illegal issues like insider trading. Once an investigation has gone on a year, a company may find that it has spent millions of dollars defending itself or cooperating to resolve a government investigation. But the clock belongs to the government and the target of any inquiry has no control over the length of the process.

Pequot is an example of how investors in a fund may be hurt by extended government probes, even if it turns out that nothing is wrong.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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