Feds Seize Documents In Hedge Fund Raids

Nov 23 2010 | 12:35pm ET

As many as a dozen hedge funds could find themselves or their employees ensnared in a major insider-trading investigation that saw the offices of three hedge funds raided yesterday.

Agents from the Federal Bureau of Investigation descended on Diamondback Capital Management, Level Global Investors and Loch Capital Management yesterday morning. Agents search Greenwich, Conn.-based Level Global's New York office and Stamford, Conn.-based Diamondback's headquarters. Loch Capital's offices in Boston were also searched.

FBI agents were seen leaving all three locations last night carrying out documents and other possible evidence. Four men in overcoats and badges left Level's midtown Manhattan offices on Seventh avenue with rolling suitcases and carrying backpacks, while three men left Diamondback's Stamford office in an FBI vehicle. Security guards at the building ordered journalists to leave.

Both Diamondback and Level Global said they are cooperating with the investigation. Loch Capital has yet to comment on the situation.

The raids are believed to be part of a three-year-long insider-trading investigation into the trafficking of secrets on Wall Street. No charges have yet been filed, but the could come as soon as over the next few weeks or early next year.

Fox Business Network's Charlie Gasparino said yesterday that the raids are part of what is "essentially a war on hedge funds."

"The Justice Department wants to set a major example here in the trillion-dollar hedge fund industry and their plan is to take down as many as a dozen hedge funds that are involved in this investigation," he said. "Shut them down or at least severely alter their business practices."

Gasparino added that the Securities and Exchange Commission, which is participating in the investigation and will likely file a number of civil cases, "seems to be taking a backseat" to the Justice Dept., whose U.S. Attorney's office in New York is leading the probe.

The investigation is focused on several allegedly interlocking insider-trading rings. Among the focuses of the investigation are the use of expert networks by hedge funds and mutual funds, as well as whether hedge funds have enjoyed advanced knowledge of mergers, especially among technology and healthcare companies.

Dozens of hedge funds have been subpoenaed, including Jana Partners and TPG-Axon Capital Management.

Both Diamondback, which manages about $4.7 billion, and Level Global, which manages about $3 billion, were founded by alumni of SAC Capital Advisors. Loch Capital, which manages less than $2 billion, suffered redemption requests of more than $200 million after a close friend of founders Timothy and Todd McSweeney pleaded guilty in the Galleon Group insider-trading case.

According to prosecutors, Steven Fortuna admitted sharing inside information about Dell Computer with the manager of an unidentified Boston hedge fund. While Loch Capital has not been identified as that hedge fund, the firm does focus on technology investments and a court filing notes that Fortuna and the unidentified hedge fund manager were friends.

In Depth

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


U.S. Trust's Beard: The Rapid Growth of the Art Lending Industry

Oct 7 2016 | 10:55pm ET

Alternative investment managers have emerged as some of the most significant art...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...