SAC, Citadel Subpoenaed In Insider-Trading Probe

Nov 24 2010 | 5:15am ET

SAC Capital Advisors and Citadel Investment Group have been subpoenaed in the widening federal investigation into potential insider-trading on Wall Street.

SAC and Citadel were among at least four firms to receive information requests from the U.S. Attorney's office in Manhattan. That office is leading the probe that saw three other hedge funds—Diamondback Capital Management, Level Global Investors and Loch Capital Management—raided on Monday.

Also subpoenaed were mutual fund giant Janus Capital Group and institutional money manager Wellington Management.

SAC said the information request was "extraordinarily broad" and identical to those received by the other firms. The Stamford, Conn.-based hedge fund giant told investors yesterday that the subpoena doesn't "shed much light on whom or what the government may be investigating," but did say that the use of consultants and soft dollars appears to be of interest.

The subpoenas are not the first issued in the three-year-long investigation. Dozens of hedge funds, including Jana Partners and TPG-Axon Capital Management, have already received them.

One of the focuses of the investigation is the use by hedge funds of expert networks and whether those experts are providing non-public information. One such expert, Yves Benhamou, was arrested and charged earlier this month with passing confidential tips on to FrontPoint Partners.

The Federal Bureau of Investigation last month questioned an account manager at one research firm providing expert-network services, Primary Global Research. The Feds want to know more about one of the company's consultants and his hedge-fund clients, The Wall Street Journal reports.

The questioning, which focused on a semiconductor industry expert, was primarily conducted by B.J. Kang, the FBI agent who played a prominent role in building the Galleon Group insider-trading cases last year. Kang also led an insider-trading investigation into SAC three years ago.

The head of another research firm, Broadbent Capital, said that the FBI last month sought his cooperation in taping phone calls with SAC, one of his clients. John Kinnucan said he refused; Broadbent counts all four firms that received subpoenas this week as clients.

But those four aren't the only ones feeling the heat. Chicago-based hedge fund Balyasny Asset Management is also under investigation, Dow Jones Newswires reports. A former Balyasny employee has been linked to two other insider-trading cases, the Galleon case and that of hedge fund manager Steven Fortuna.

Goldman Sachs may also be feeling the heat: Another focus of the larger investigation is whether Goldman bankers were passing along tips; a "low-level" Goldman employee "got roped into the investigation by 'some sort of association' with Diamondback," Fox Business Network's Charles Gasparino reported yesterday.

Another firm under investigation, proprietary trading shop First New York Securities, launched a review of its own operations in the wake of the federal investigation, according to Reuters.

The firm told employees that it "discovered nothing which leads us to believe that anything has been done that is improper or inconsistent with regulatory requirements." Federal investigators are reportedly looking into whether the firm, which is planning to launch its first hedge fund next year, received advanced information about impending mergers.


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