FBI Raids Three Hedge Funds Amid Insider-Trading Case (WSJ)

The Wall Street Journal
By Susan Pulliam, Jenny Strasburg and
Michael Rothfeld
11/22/10

Federal Bureau of Investigation agents raided the offices of three hedge funds as part of a high-profile insider-trading investigation, and more could be on the way, according to people familiar with the matter.

The offices of Diamondback Capital Management LLC and Level Global Investors LP were raided. Both hedge funds are run by former managers of Steve Cohen's SAC Capital Advisors.

The third firm raided is Loch Capital Management LLC, based in Boston, people familiar with the matter say. Leonard Pierce, a lawyer for Loch Capital, declined to immediately comment.

"The FBI is executing court-authorized search warrants in an ongoing investigation," said Richard Kolko, an FBI spokesman, who declined to comment further.

Loch had $750 million in assets as of the start of this year, according to SEC filings. The firm, run by brothers Timothy and Todd McSweeney, didn't immediately return a message seeking comment. Leonard Pierce, a lawyer for Loch Capital, declined to immediately comment.

The McSweeney brothers are acquaintances with Steven Fortuna, a hedge-fund manager who pleaded guilty in the Galleon case and agreed to cooperate in that ongoing investigation.

Level Global Investors LP is a Greenwich, Conn., hedge-fund firm run by David Ganek, a former SAC Capital trader and art collector. He started Level Global in 2003 and earlier this year reported managing about $4 billion in assets.

Diamondback Capital Management LLC is based in Stamford, Conn., and was started in 2005. It oversees more than $5 billion in assets, according to SEC filings.

The moves by the FBI follow an article by The Wall Street Journal describing an insider-trading investigation that is expected to encompass consultants, investment bankers, hedge-fund and mutual-fund traders. The investigation is said by people close to the situation to eclipse in size and magnitude past insider-trading probes.

Messages left with Richard Schimel, Diamondback's co-chief investment officer, and Diamondback's general counsel, Joel Harary, on their office phones weren't immediately returned.

A spokesman for Level Global said, "We can confirm that agents from the Federal Bureau of Investigations visited our offices this morning as part of what we believe to be a broader investigation of the financial services industry discussed in media reports over the weekend. We are cooperating fully with the authorities and, at the same time, we are fully operational and continue to work diligently for the benefit of our investors."

Huge Insider Trading Probe-Some charges could be brought before year-end

Will Someone Finally Go To Jail In Lieu

of the Meaningless SEC Fine Payment?

(just how do Wall Street Investment Banks have no losing

trading days in an entire quarter...?)

The Wall Street Journal
By Susan Pulliam, Michael Rothfiels,
Jenny Strasburg and Gregory Zuckerman
11/20/10

Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter.

The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.

The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.

One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.

Among the expert networks whose consultants are being examined, the people say, is Primary Global Research LLC, a Mountain View, Calif., firm that connects experts with investors seeking information in the technology, health-care and other industries. "I have no comment on that," said Phani Kumar Saripella, Primary Global's chief operating officer. Primary's chief executive and chief operating officers previously worked at Intel Corp., according to its website.

In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.

Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.

"Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," the email said. "(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web."

The email, which Mr. Kinnucan confirms writing, was addressed to traders at, among others: hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management. SAC, Wellington and MFS declined to comment; Janus and Citadel didn't immediately comment. It isn't known whether clients are under investigation for their business with Mr. Kinnucan.

The investigations have been conducted by federal prosecutors in New York, the FBI and the Securities and Exchange Commission. Representatives of the Manhattan U.S. Attorney's office, the FBI and the SEC declined to comment. The rest of the story

Illegal insider trading on Wall Street is rampant

Mr. Bharara previously spent five years

as an assistant U.S. attorney prosecuting

organized crime leaders of the Gambino

and Colombo crime families.

(Mr. Bharara will not be intimidated by the Wall Street gangsters...)

Crain's New York Business
By Hilary Potkewitz
10/21/10

Saying illegal dealing is on the rise, U.S. Attorney Preet Bharara says his office is readying a new round of prosecutions and will up its use of wiretaps to catch white-collar crooks.

U.S. Attorney Preet Bharara said Wednesday night that insider trading is “rampant” on Wall Street and that his office is expanding its use of wiretaps to pursue Wall Street crimes.

“From my vantage point, I can see that illegal insider trading is rampant and may be on the rise,” Mr. Bharara said to a meeting of white-collar criminal defense lawyers at the New York City Bar Association. “We have devoted significant resources to this and are adding more.”

Calling insider trading a top criminal priority for his office, Mr. Bharara hinted that a new wave of arrests was on the way, though he declined to give details. He also said that his office will bring charges against corporations where appropriate.

About a year ago, the Federal Bureau of Investigation nabbed billionaire Raj Rajaratnam in an insider trading conspiracy by using wire-taps to record transactions and conversations within the Galleon Group, Mr. Rajaratnam’s former hedge fund. The ongoing case led to indictments and the resignation of several high-profile traders and corporate insiders.

Mr. Bharara said he views the Gallon case as a model for the successful use of court-authorized wire-taps in Wall Street cases, and said he plans to expand their use in insider-trading investigations.

“If you think about it, using electronic devices to monitor trading, which is predominantly an electronic activity, makes the most sense,” he said. “It certainly makes more sense when you think of all the other non-electronic crimes where we’ve been using wiretaps for years.”

Mr. Bharara previously spent five years as an assistant U.S. attorney prosecuting organized crime leaders of the Gambino and Colombo crime families. He pointed out that organized crime and white-collar crime have started to overlap. Just last month, a criminal investigation into cocaine trafficking at the ports of New York and New Jersey uncovered a multimillion dollar “pump-and-dump” stock fraud scheme.

“As long as white-collar criminals are using the tactics of common criminals, we have no choice but to treat them as common criminals,” Mr. Bharara said.