FBI raids hedge funds Level Global, Diamondback and Loch Capital in insider-trading probe

By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, November 22, 2010; 10:10 PM

Federal investigators raided the offices of three hedge funds Monday, a federal law enforcement official said, advancing a broad investigation into insider trading.

FBI agents searched the offices of Level Global Investors in Greenwich, Conn., Diamondback Capital Management in Stamford, Conn., and Loch Capital Management in Boston.

"The FBI is executing court-authorized search warrants in an ongoing investigation. This matter is sealed and we have no additional comment," said Richard Kolko, an FBI spokesman.

The raids come as federal prosecutors in New York are in the advanced stages of an extensive insider-trading probe that could lead to criminal charges against Wall Street traders and executives, according to law enforcement officials.

Authorities had planned to file charges in the investigation by year's end but are now considering moving up the timetable after details of the probe came out in an article in the Wall Street Journal on Saturday.

Preet Bharara, U.S. attorney for the Southern District of New York, has led the charge on insider-trading investigations, calling them a "top criminal priority" and warning of "rampant" insider trading.

Andy Merrill, a spokesman for Level Global, said that the FBI visited the company Monday morning "as part of what we believe to be a broader investigation of the financial services industry."

Diamondback Capital said in a statement e-mailed to reporters: "We received an inquiry this morning from the FBI. Diamondback is voluntarily cooperating."

A lawyer for Loch did not respond to an e-mail seeking comment.

According to published reports, SAC Capital Advisors, one of the biggest names in the hedge fund world, run by billionaire investor Steven A. Cohen, is being examined by investigators. Both Level Global and Diamondback were founded by former SAC employees.

A spokesman for SAC did not immediately reply to a request for comment.

Diamondback owns stock in 706 companies - mostly energy and financial services businesses - with a value of $4.13 billion, according to Bloomberg News. Level Global owns stocks in 77 companies worth $3.08 billion, according to Bloomberg. Loch is smaller.

Loch was founded in part by Steven Fortuna, who is providing key testimony in the ongoing Galleon hedge fund case, referred to by investigators last year as the largest hedge fund insider-trading case in history.

The newly disclosed federal investigation, conducted by the U.S. Attorney's Office in Manhattan and the FBI, has been underway for several years and extends far beyond Wall Street to financial offices across the country.

The Securities and Exchange Commission is conducting a parallel civil probe.

The Wall Street Journal has reported that authorities are investigating bankers at Goldman Sachs in particular who may have given confidential information about health-care mergers to certain investors. Goldman has declined to comment.

The Journal also said that prosecutors are examining consultants with industry expertise who may be providing confidential information to hedge funds and mutual funds.

"Illegal insider trading is rampant and may even be on the rise," Bharara said in a speech last month to the New York City Bar Association. But he cautioned: "It has perhaps never been more difficult to attack through traditional investigative means."

Prosecutors and the SEC have been pressing other insider trading cases recently, too. Earlier this month, prosecutors in Manhattan charged a French doctor with providing illegal inside information to a hedge fund manager about a drug undergoing review.

Last month, former Countrywide chief executive Angelo Mozilo agreed to settle insider trading and other charges brought by the SEC for $67.5 million. About $22.5 million of that amount is being paid by Mozilo; the rest is being covered by Bank of America, which acquired Countrywide.

© 2010 The Washington Post Company