David Zilkha's divorce papers got Pequot Capital in trouble with SEC – ex-wife Karen Kaiser was the whistle blower

IS IT TRUE THAT DIVORCE CAN BE THE SCARIEST THING ON WALL STREET?
Bloomberg.com seems to think so, and one might be apt to agree. Case in point is the SEC probe into Pequot Capital Management that got David Zilkha and Pequot CEO Arthur Samberg into big trouble with the SEC for insider trading. The tip off came from disgruntled ex-wife Karen Kaiser. Whatever David did to Karen must have been huge because she tipped off the SEC with papers he had in his files at home. She, btw, gets a $1 million bounty for the squeal, proving, that indeed, divorce can be not only the costliest thing on Wall Street, but also the scariest:

“Divorce can be the scariest thing on Wall Street,” said Peter Henning, a former SEC enforcement attorney who teaches at Wayne State University Law School in Detroit. “It exposes all of your secrets. People don’t hide things from their spouses.”
Samberg, 69, and Pequot, once the world’s biggest hedge fund, agreed to pay a total of almost $28 million, including forfeiture of profits and interest, to settle claims they traded illegally on confidential information from Zilkha in 2001.
The settlement resolves the agency’s second probe of Pequot’s trades, after SEC lawyers in 2006 said there was insufficient evidence to support claims. Investigators’ interest rekindled last year after they got copies of e-mails showing Zilkha got information about Microsoft’s earnings from colleagues at the Redmond, Washington-based software maker.
Kaiser copied the hard drive of the family’s shared computer during the couple’s divorce proceedings, her lawyers said last year. The SEC’s complaint against doesn’t specify who provided the documents from the hard drive. [BLOOMBERG]

But it wasn’t just the insider trading that was revealed by the divorce papers. The papers also revealed that Zilkha was fired by Pequot after he stopped giving them insider tips on Microsoft:

The divorce proceedings also triggered the revelation that Zilkha, who was hired by Pequot after allegedly providing insider information about Microsoft, told his psychologist that he was fired after he stopped giving tips. The psychologist, Peggy Thomson, disclosed the private conversations with Zilkha at an October 2009 court proceeding on the divorce.
“He said that Mr. Samberg wanted him to get inside information on Microsoft,” a court transcript quotes Thomson as saying. “Mr. Zilkha stopped providing it, he was fired.”
Senators Charles Grassley and Arlen Specter sent a letter to Samberg in December 2008 asking why he agreed in 2007 to pay Zilkha $2.1 million even though he’d left Pequot in 2001 after working for the hedge fund for less than a year. Pequot said it agreed to make the payments after Zilkha threatened to bring an employment complaint against the company. [BUSINESS WEEK]

Divorce can definitely be a dangerous proposition where one spouse has dangerous secrets. Who has a bigger ax to grind than an angry spouse? And the thing with spouses is that while things are merry, they tend to know all the secrets and skeletons of the other spouse. Which is fine. If the marriage lasts forever. But if it doesn’t? Well, like the proverbial sex tape, it is wise for married people to remember that things don’t always work out the way they plan. So, don’t do, tell or say anything to your spouse that you wouldn’t want revealed in open court. It doesn’t matter how in love you think you both are with each other. There is a good chance your love will turn to hate at some point and if that happens and you have big, ugly secrets, it is blackmail fodder.
Moral of the story is, even if you are married, never let the right hand know what the left hand is doing.
You’ve been warned.