PEQUOT-LIQUIDATION-UP

Arthur Samberg, founder of Pequot Capital Management Inc., plans to liquidate his main hedge funds because a federal insider-trading investigation has “cast a cloud over the firm.”

“With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment adviser,” Samberg wrote Wednesday in a letter to clients.

The firm manages about $3 billion in assets, according to a person familiar with matter.

The U.S. Securities and Exchange Commission reopened a probe in January into whether Samberg’s funds illegally profited by trading on inside information about Microsoft Corp., people familiar with the matter said at the time.

Investigators learned of documents that show that former Microsoft employee David Zilkha may have obtained confidential information in 2001 about the software maker, one of the people said.

Zilkha left the Redmond, Wash., company that year to join Pequot.

“Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction,” Samberg, 68, wrote in the letter, a copy of which was obtained by Bloomberg News.