Diamondback Calls It Quits Two Years After Raid

Dec 6 2012 | 12:15pm ET

Four hedge funds were raided by the Federal Bureau of Investigation in November 2010. Only one has survived—until now.

Diamondback Capital Management said today that it would liquidate and close its doors in the face of another $520 million in redemption requests. The move comes in the middle of the trial for insider-trading of Todd Newman, a former portfolio manager at the hedge fund.

While the three other hedge funds raided that month quickly folded, Diamondback soldiered on, proclaiming its innocence and cooperation with the federal investigation. It settled with the Securities and Exchange Commission in January, agreeing to surrender the allegedly illegal profits earned by Newman at the firm.

Diamondback told clients it had been assured it was not a target of the federal investigation. But investors still pulled billions from the firm; its assets have fallen from $5.8 billion at the time of the raid to just $1.45 billion following the latest redemptions.

"Rather than continue to manage investor capital while undertaking to restructure the firm to manage this reduced level of assets, we have decided that the most prudent course is to wind down and terminate the funds and return investor capital," firm founders Lawrence Sapanski and Richard Schimel wrote to clients.

Diamondback said it would return most client money by next month. The firm is up 5.85% this year and has posted annualized returns of 9.1% since its 2005 debut.

"We are grateful to have had the privilege of managing your money and developing a seven-year track record of which we can be proud," Sapanski and Schimel told their remaining investors. "We especially appreciate your patience and support during the last two difficult years during which we reached closure of the government's investigation. Our sincerest thanks to each of you for all of your trust in us."

Two former Diamondback employees, analyst Jesse Tortora and portfolio manager Anthony Scolaro, have pleaded guilty to insider trading. It was Scolaro's cooperation that led to the raid two years ago, while Tortora was a key witness against Newman.

Stamford, Conn.-based Diamondback has 133 employees.


In Depth

Q&A: Neil Azous Talks Global Macro Investing

Nov 24 2014 | 12:41pm ET

Neil Azous is the founder and managing member of Rareview Macro, an advisory firm...

Lifestyle

Griffin Selling Chicago Apartment

Nov 26 2014 | 11:40am ET

Citadel Investment Group’s Kenneth Griffin is making clear to his estranged wife...

Guest Contributor

Why The Big Money Is Going To Europe

Nov 14 2014 | 6:03am ET

Peer-to-peer lending was invented with the individual investor in mind. But despite...

 

Sponsored Content

    For Hedge Funds, Mastering Data Is Key To Success

    Nov 4 2014 | 9:45am ET

    Data management is important to every business, but for hedge funds, it is critical. FINalternatives recently asked Peter Sanchez, CEO of Northern Trust Hedge Fund Services, how fund managers can deal with the demands of managing data while at the same time remain transparent and abide by operational best practices. Read more…

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

November 2014 Cover

Building a better market

Reg NMS created a huge bifurcation in equity markets and while much of what has followed has been positive, in terms of lower fees and greater liquidity, many traders would like to see the market come...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.