The fallout from the federal government”™s recent hedge fund raids in Stamford and Greenwich into alleged insider trading continues.
Stamford-based Diamondback Capital Management LLC said in a statement to investors that the search by the Federal Bureau of Investigation on Nov. 22 focused on one of the hedge fund”™s portfolio managers, who was immediately placed on an indefinite leave. Diamondback said it was told by the government that the organization itself was not the target of the probe.
“The warrant appears to be focused on a single employee, a portfolio manager, as well as on a former employee who reported to that employee,” Diamondback co-founders Lawrence Sapanski and Rich Schimel said in the statement.
The offices of Greenwich-based Level Global Investors LP and Boston-based Loch Capital Management were raided on the same day as Diamondback.
Stamford-based hedge fund SAC Capital Advisors, whose former employees now run Diamondback Capital Management and Level Global Investors, was subpoenaed in the federal investigation.
Denver-based Janus Capital Group Inc. and Boston-based Wellington Management Co. were among the firms that received information requests two weeks ago as part of an insider-trading investigatory initiative.
Diamondback, Level Global Investors and Loch Capital Management are reported to have recently ventured major wagers on drug stocks; the deals mentioned involved Med Immune Inc., Merck & Co. and Pfizer Inc. The implications are based on investment timing that was not available, though trading by Med Immune and Diamondback are reported ”˜to have exhibited similar patterns.”™
Part of the investigation is to examine whether banks and consulting firms, including Goldman Sachs Group Inc., leaked information about transactions, including the drug industry data, in ways that benefited certain investors.
The government has made nearly two dozen arrests involving a New York hedge fund, the Galleon Group, and a ring of alleged inside traders. Galleon”™s founder, Raj Rajaratnam, is at the heart of the investigation. Authorities are also looking at consultants and advisory network firms used by hedge funds. New York City-based hedge fund consulting company Guidepoint Global was one of the companies mentioned as under investigation by the FBI.
Diamondback”™s founders said several of its 135 investment professionals use industry research consultants. Diamondback oversees about $5.8 billion in assets.
Meanwhile, the Government Accountability Office, in accordance with Title IV, Section 414 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is looking into creating a hedge fund self-regulatory organization. Study findings are due to be presented to Congress in January.
