The first institutional investor known to pull its money from the Galleon Group is Rochdale Investment Management.

The high-net worth investor and family office advisory wasted no time in the wake of Galleon founder Raj Rajaratnam’s arrest Friday on insider-trading charges, announcing yesterday that it was withdrawing all of its $2 million from Galleon’s flagship hedge fund. Rochdale was only a small part of an avalanche of investors flooding the New York-based hedge fund with redemption requests.

“We don’t conduct business with anyone who in fact violates the law,” CEO Garrett D’Alessandro told Dow Jones Newswires. “It’s one of our absolute conditions.”

Of course, some institutional investors didn’t wait for Rajaratnam’s arrest to decide that Galleon wasn’t for them. The Financial Times reports that several passed on the highly-successful hedge fund because they didn’t like what they saw in due-diligence reports they commissioned.

While none of the investors interviewed by the newspaper said they suspected any wrongdoing, they did say that some of Galleon’s practices and performances raised eyebrows.

“We didn’t know anything like this would happen,” one London-based fund of hedge funds told the FT. “But we picked up in our due diligence things that made us uncomfortable, so we just decided to steer clear.”

Another institutional investor said it was concerned about Galleon’s lack of guidelines on portfolio concentration, and the hedge fund’s large bets on individual stocks.

Yet another said that one way to post big returns—Galleon has averaged 23.3% annual returns—is to have “some specialized source of sustainable information.”

“Unless that information is from fundamental analysis—and in Galleon’s case it did not all seem to be—then that’s a red flag for us.”

Another investor put it more bluntly.

“People mistake wealth for intelligence,” the investor told the FT. “No one pretended Raj was a brilliant stock analyst—he was just extremely well-connected. And he always made that known.”

Galleon isn’t the only hedge fund linked to the Rajaratnam charges to suffer from the bad publicity. Citywire reports that Union Bancaire Privée has fired New Castle Partners, the former Bear Stearns hedge fund that saw two of its former executives charged alongside the Galleon founder. New Castle had been contracted to manage the Swiss bank’s new US Long/Short Equity UCITS III fund.

UBP will shut down the four-month-old fund, which managed more than US$50 million, according to Citywire.