Tags: FBI | Raids | Hedge | Funds | Insider | Case

Report: FBI Raids Hedge Funds in Insider-Trading Probe

Monday, 22 Nov 2010 01:35 PM

FBI raids seeking documents from three hedge funds are related to a series of insider trading investigations directed by the office of Manhattan U.S. Attorney Preet Bharara, according to a person familiar with the probes.

The offices of Level Global Investors LP and Diamondback Capital Management LLC, firms founded by alumni of SAC Capital Advisors LLC, were searched by Federal Bureau of Investigation agents, the FBI said today. Agents also executed a search warrant at the offices of Loch Capital Management, according to another person familiar with the matter. Both declined to be identified because the probes are ongoing.

“The government has decided it needs to use force to obtain all the information that it needs,” said Jacob Frenkel, a former federal prosecutor and lawyer with the Securities and Exchange Commission. “It has opted not to issue grand jury subpoenas but instead use the search warrant process.”

Steve Bruce, a spokesman for Diamondback, declined to comment. Andy Merrill, a spokesman for Level Global, confirmed the FBI had searched the hedge fund’s offices. Timothy McSweeney of Loch Capital didn’t immediately respond to a phone message.

“We are cooperating fully with the authorities,” Merrill said in an e-mailed statement. Ellen Davis, a spokeswoman for Bharara, declined to comment.

706 Companies

Diamondback, based in Stamford, Connecticut, owned U.S.- listed stocks in 706 companies at the end of the third quarter, with a market value of $4.13 billion, most of it in energy companies and financial services, according to data compiled by Bloomberg. Level Global, with offices in Greenwich and New York, owned stocks in 77 companies valued at $3.08 billion, with 34 percent of that in consumer discretionary stocks and 31 percent in information technology companies.

Its biggest U.S. stock holding by market value is a 5.8 percent stake in Virgin Media Inc., the U.K.’s second-largest pay-television company, according to regulatory filings for the third quarter.

Level Global, founded in 2003 by SAC veteran David Ganek, told clients in April that it had sold a minority stake to a leveraged-buyout firm run by Goldman Sachs Group Inc., Petershill Fund Offshore LP.

Started in 2005

Diamondback was started in 2005 by Rich Schimel, Lawrence Sapanski and Chad Loweth, all former SAC traders. Schimel is the brother-in-law of SAC’s founder, Steven A. Cohen. Loweth left Diamondback this year.

Sapanski joined SAC in 1998 where he traded financial services, energy and retail stocks, according to Diamondback’s marketing documents. Before that, he was a proprietary trader at firms including London & Bishop Gates International, Morgan Stanley and Lehman Brothers Holdings Inc. He began his career at Morgan Stanley in 1981 as an accountant, according to the documents.

Before co-founding Diamondback, Schimel was also a portfolio manager at SAC, which he joined in 2000. Prior to that he worked at Morgan Stanley where he was a proprietary trader on the government bond trading desk, according to the marketing documents. He began his career in 1990 at Paine Webber as a trading assistant.

Schimel and Sapanski didn’t immediately return phone messages seeking comment.

Michael DuVally, a spokesman for Goldman Sachs, declined to immediately comment. Jonathan Gasthalter, a spokesman for Stamford-based SAC, declined to comment.

Frenkel, the former prosecutor, said that it’s likely the government has cooperating witnesses providing information to help it obtain the warrants from federal judges.

“The availability of those tools is very fact and cooperator intensive,” he said. “In order to get a warrant, the government has to have information that would enable it to get court authorization.”

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