Boston Hedge Fund Burned By Galleon-Linked Redemptions

Jan 25 2010 | 9:10am ET

One of Boston’s biggest hedge funds has been inundated with redemption requests after a close friend of its founders pleaded guilty in the Galleon Group insider-trading scandal.

Loch Capital Management, which one managed more than $2 billion, has been hit with withdrawal requests topping $200 million, Reuters reports. At least some of those redemptions are linked to the longtime friendship of founders Timothy and Todd McSweeney and Steven Fortuna. Fortuna, the co-founder of fellow Boston hedge fund S2 Capital Management, is a key government witness in the Galleon case.

According to prosecutors, Fortuna admitted sharing insider information with the manager of an unidentified Boston hedge fund. There is no indication that that fund is Loch Capital, but a court filing says that the manager and Fortuna were friends. Loch Capital is a technology fund; the Fortuna tip involved Dell Computer.

Neither of the McSweeneys nor Loch Capital have been accused of any wrongdoing.

Fortuna, by contrast, is said to have shared tips with Danielle Chiesi, a former executive at New Castle Partners. Chiesi, who has been charged alongside Galleon founder Raj Rajaratnam, has pleaded not guilty.


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