Level Global Insurer May Have To Pay Bills

May 16 2012 | 12:19pm ET

Level Global Investors' insurer will have to keep paying the defunct hedge fund's legal bills, a federal judge said last week his is inclined to rule.

U.S. District Judge Paul Engelmayer told XL Speciality Insurance that he was prepared to order it to continue to pay. XL in March sued Level Global, alleging that the hedge fund, which was ensnared in the expert-network insider-trading case, of lying on its application for a $10 million liability policy.

Engelmeyer's ruling, which he said he would stay to allow XL to appeal, would not represent a final decision on XL's liability. It would merely force XL to continue to pay Level Global's legal bills pending the outcome of its litigation.

XL has already paid $7.45 million of the policy. But it says that the fact that former Level Global analyst Spyridion Adondakis has pleaded guilty in the case and is cooperating with prosecutors triggers a clause voiding the policy. Level Global, which now exists solely for the purpose of defending co-founder Anthony Chiasson, who was hit with criminal insider-trading charges in January, argues that the policy was signed by its general counsel, who was not aware of the alleged crimes in the case.

With XL refusing to pay its legal bills, Level Global's lawyers told Engelmayer that its "operating deficit is running in the millions of dollars." Level Global said it paid $2.7 million in legal fees before receiving XL's lawsuit.

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