The Securities and Exchange Commission has reopened its investigation of possible insider trading involving a major hedge fund, a case closed two years ago that prompted scrutiny by Congress and the agency's internal watchdog.

The SEC is examining whether the hedge fund, Pequot Capital Management, traded Microsoft Corp. shares on confidential information provided by a former employee of the technology company that it hired, a person familiar with the inquiry said Thursday.

The person spoke on condition of anonymity because the SEC has not publicly acknowledged reopening the probe. SEC spokesman John Nester declined to comment Thursday.

New information that surfaced last month revived interest in the case. Documents that emerged in a divorce proceeding in Connecticut showed that Pequot began paying $2.1 million to a key witness in the case in mid-2007.

The documents show a payment by Pequot of $700,000 at that time to David Zilkha, a former Microsoft employee later hired by the hedge fund. Zilkha received an additional $700,000 in mid-2008 and was slated to receive the same amount this year, according to the documents in the divorce case between Zilkha and his ex-wife, Karen Kaiser.

"To me it smells like hush money, but I have no idea," her attorney, Mark Sherman, told The Associated Press Thursday.

Zilkha's lawyer, Norm Pattis, declined to comment.

Pequot, a $4.3 billion hedge fund based in Westport, Conn., and its founder and chairman, Arthur Samberg, have denied any wrongdoing.

Pequot spokesman Jonathan Gasthalter said the payments to Zilkha were made "pursuant to the settlement of a civil claim related to his employment and termination by Pequot that was first presented to the firm in January 2007 after all investigations had been closed."

Gasthalter said Pequot will cooperate fully with all requests for information and is confident that its trading in Microsoft shares "was at all times proper."