The SEC lawyer who is at the center of an investigation into possible insider trading at the prominent hedge fund Pequot Capital has agreed to appear as at witness during Senate Judiciary Committee hearings that are focusing on the secretive hedge-fund business, CNBC has learned.

         Former SEC attorney Gary J. Aguirre, (pronounced a-GEER-ray) headed SEC's investigation and then criticized the agency's handling of the case after the commission fired him. Aguirre has agreed to testify in the hearings, scheduled to take place Wednesday in Washington, according to a preliminary witness list obtained by CNBC and a person with knowledge of the committee's activities. Other witnesses include a representative of the Department of Justice as well as Connecticut Attorney General Richard Blumenthal, the chief law enforcement official of the state where most hedge funds reside. Committee Chairman Arlen Specter may also ask a representative of the SEC to appear at the hearings.

       Aguirre's testimony would mark his first public comments since

news of a letter he sent members of Congress leaked last week that

rocked the massive and growing hedge-fund business. In an 18 page

letter, Aguirre alleges that he was fired from the SEC as he was

investigating possible insider trading violations at Pequot and

preparing to depose Morgan Stanley CEO John Mack as a witness. Before taking the Morgan Stanley post, Mack was the vice chairman of the hedge fund, but more importantly for the investigation, he was the CEO of Credit Suisse when the firm was serving as a banker in a deal that has come under scrutiny during Aguirre's insider trading probe. Both Pequot and officials at Morgan Stanley say they've done nothing wrong.

      According to people with knowledge of the committee's activities, Specter believes Aguirre could provide what has since been missing from the witness list as he gears up for the hearings: A genuine, inside look into the secretive world of hedge funds and some indication if the business needs closer scrutiny from regulators at the SEC and the Department of Justice.

People with knowledge of Specter's activities say the Senator may also use the hearings as a springboard to introduce legislation that would increase hedge fund regulation. Just last week a federal appeals court says the SEC doesn't have the authority to enhance its regulation of the hedge fund business.

     All the congressional activity won't be good news for the hedge

fund business, which for years operated on the periphery of Wall Street, catering to the super rich. More recently, hedge funds

have grown in popularity with more mainstream investors, and as a

result, they've caught the eye of regulators.

     CNBC has learned that the committee's interest in the hedge fund business stemmed in large part from the complaints of Overstock.com's CEO Patrick Byrne, who convinced Utah senator Orin Hatch, a ranking member of the judiciary committee, to take a

close look at hedge funds, short selling and the use of research to drive down stock prices. Overstock is located in Utah, and Byrne has waged a  public campaign attacking short sellers for using potentially illegal tactics to drive the stock.

     But Specter, the committee chairman, chose not to focus on

Overstock and include Byrne as a witness because he feared the

hearings would turn into a spectacle given some of Byrne's recent

comments, and instead began to focus on larger issues involving hedge funds, namely whether the Justice Department and other regulators like the SEC has done enough to crack down on hedge-fund fraud.

      People with knowledge of the committee's activities say he

believes Aguirre would make a perfect witness given his inside

knowledge of both hedge funds and regulatory attempts top crack downon the business. These people also say that Specter and the committee will examine why Aguirre was fired.

Charles Gasparino - CNBC

The regulatory pressure on short sellers is mounting as the Senate Judiciary Committee has launched its own inquiry into whether improper short selling helped sink shares of
Vonage after its disastrous IPO.

The committee which is planning hold hearings on hedge funds, independent research and short selling on Wednesday of next week, has contacted Vonage about the possibility of testifying as well as the New York Stock Exchange, which has already launched its own investigation on the matter.

Shares of Vonage have declined sharply since its IPO in May.  The stock was  priced at $17 a share, but quickly sank to under $9 a share.  A spokeswoman for Vonage says the company is not planning to testify, though that may change if it is subpoenaed. A spokesman for the NYSE had no comment.  

The Judiciary Committee's interest shouldn't be taken lightly.  While the committee doesn't have oversight of stock regulators like the SEC, it has direct oversight of the U.S. Justice Department, which has stepped up its scrutiny of Wall Street and white-collar offenses. People on the committee tell me that representative of the Justice Department will be present at the hearing.

One person who wont be at the hearings is Patrick Byrne the head of Overstock.com, who is probably the person most responsible for the growing interest of stock regulators and now Congress into the issues surrounding short selling and a practice known as "naked short selling" where short positions are created without taking physical delivery of the stock. Keep in mind that ranking Judiciary Committee member Orin Hatch represents Utah, the home of Overstock.

Hank Paulson may be leaving Goldman Sachs for the U.S. Treasury Department, but that doesn't mean he can escape testifying in the Dick Grasso pay package trail scheduled for October 30th of this year.

        CNBC has learned that last week, Grasso, the former Chairman and CEO of the New York Stock Exchange, sent out 20 so-called "trial subpoenas" to various Wall Street executives who also served on the NYSE board involved in the dispute over his $140 million pay package, which is the subject of a civil suit by N.Y. Attorney General Eliot Spitzer. 

        Among those receiving the subpoenas was former Merrill CEO Dave Komansky, and a host of other CEOs even though his trial isn’t scheduled to begin for months. But Grasso's real target, according to people close to the case, is Paulson, who once  confirmed, will be the new Treasury Secretary replacing John Snow.

        Grasso's legal team, headed by prominent attorney Brendan Sullivan, is afraid that Paulson will claim some kind of privilege if they subpoena him after he's confirmed as Treasury Secretary. By subpoenaing him now, they believe it makes it virtually impossible for him to skip the trial.

        Paulson figures to will be a key witness for Grasso. Spitzer is seeking the return of around $100 million of the $140 million Grasso received before he was ousted as stock exchange chairman in Sept., 2003. Spitzer says the pay package violated a New York State law that says the compensation of officials at non-profits (at the time the NYSE was a non-profit corporation) must be reasonable.

        Even though Paulson led the charge to get rid of Grasso back in the summer of 2003 when the pay package first became news, in his depositions he has said good things about the former NYSE chief. He called him an A-plus CEO, and has said separately that the main reason why wanted Grasso out was because of all the bad publicity, not because Grasso was doing a bad job.

        A spokesman for Paulson had no comment on the matter, other than to say that his boss has bigger things on his plate these days, like his upcoming confirmation hearings.

Charles Gasparino - CNBC

With the markets in turmoil, now might not be the best time to start a new investment banking boutique, but don't tell that to Joe Perella. Barring some last minute snafu, Perella plans to open his new boutique for business this week, possibly as early as Thursday, CNBC has learned.

            Perella's new venture is one of the most closely watched issues on Wall Street in recent months. He left Morgan Stanley last year, protesting the leadership of then CEO Phil Purcell. When Purcell was replaced by John Mack, many people at the firm thought Perella would return. After all, he and Mack were friends and colleagues for years, and Mack was willing to give Perella a major role in the new management team.

            Perella decided to go out on his own and create his own investment banking boutique with a substantial private equity arm. He came out the gates strong, raising $1.1 billion and stealing many top bankers from Morgan and elsewhere, including Morgan Stanley capital markets star Jon Anda. Perella's aggressive tactics also caused somewhat of a rift with his old friend Mack, who was forced to stem the exodus of bankers.

            But Perella's new venture hit a snag last week when Anda did an about face, returning to Morgan. My sources at Morgan say he balked at signing a long-term non compete contract of five years given the fact that market conditions have soured. These same sources said that Perella was having difficulty getting many of the other top bankers he poached from other firms to sign the contracts as well.

             Perella, according to people with knowledge of the matter, was to officially open his firm for business by doing a high profile deal.

            People at Perella's firm say they won't announce the new business through a deal--just a simple press release. They say, however, that all the firm's partners have signed long-term agreements, though not the five-year deals initially offered. As for business, the firm is working on about a half dozen undisclosed deals that should hit the market in the not too distant future.

            Perella, it must be said, is not someone to be taken lightly. He may be the best investment banker on Wall Street with ability to call many of the top CEOs in the country. Meanwhile his partner, Terry Meguid, is about as good of a No. 2 as you can get. But some of the firm's recent problems shouldn't be taken lightly either. My opinion is that the reason why Perella won't be making a bigger splash when opens is because business conditions, in a word, stink.

            One thing that won't stink about the new firm will be the name. From what I hear it will have the word "Perella" in it.

Charles Gasparino -CNBC