In a letter to investors, the firm's founder Arthur Samberg said the probe has become "a source of personal distraction" and it was no longer appropriate for Pequot Capital to act an investment adviser.
The Securities and Exchange Commission (SEC) originally opened its probe into suspected insider dealing involving Microsoft shares in 2006, Bloomberg reports.
It centered on David Zilkha, an ex-Microsoft employee who may have obtained privileged information about the company in 2001 before he left to join Pequot. The SEC closed the investigation after it found "insufficient evidence" to mount a case.
However, the probe was reopened in 2008.
The news service noted that Pequot Capital was the biggest hedge fund manager in the world in 2001 with assets that peaked at $15 billion.