Chicago hedge fund Balyasny examined in probe

By Dow Jones Newswires-Wall Street Journal
Posted Nov. 23, 2010 at 6:36 a.m.

A three-year insider-trading investigation shifted into high gear Monday as government agents raided the offices of three large hedge funds, sending shock waves through the financial world. In coordinated raids in New York, Connecticut and Massachusetts, Federal Bureau of Investigation agents seized documents at the offices of Level Global Investors LP, Diamondback Capital Management LLC and Loch Capital Management LLC.

Another hedge fund whose activities are being examined is Chicago-based Balyasny Asset Management LP, the people familiar with the matter say. Balyasny, which reported $1.8 billion in assets under management at midyear, didn’t respond to requests for comment.

“The FBI is executing court-authorized search warrants in an ongoing investigation,” said Richard Kolko, an FBI spokesman, who declined to comment further. Diamondback and Level Global confirmed the raids and said they were cooperating with the investigation. A lawyer for Loch Capital, Leonard Pierce, declined to comment.

Level Global and Diamondback are both run by former managers of Steve Cohen’s giant SAC Capital Advisors hedge fund. A spokesman for SAC, which wasn’t raided, declined to comment.

The raids, first reported on The Wall Street Journal’s website, underscore the potential breadth of the investigation, which is being conducted by the FBI, the Manhattan U.S. Attorney’s office and the Securities and Exchange Commission. More raids are likely in the next few days, according to people familiar with the matter.

The action Monday follows disclosure of the investigation by the Journal on Friday night. Authorities are worried about the potential for possible subjects of the overall probe to flee or destroy documents, say people familiar with the matter. Representatives of the Manhattan U.S. attorney’s office, FBI and SEC declined to comment.

The Journal reported that federal authorities are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the U.S., and that some charges could be brought by year-end.

The raids helped push the Dow Jones Industrial Average down about 150 points before a rally left the index down 24.97 points. Financial stocks were hit, and some traders were attempting to sell stock also held by the three funds that were raided, traders say.

A Diamondback spokesman said the firm “is fully operational” and continues “to manage the portfolio and Diamondback’s business for the benefit of our investors.”

At Level Global, roughly two dozen agents staged the raid, according to a person familiar with the matter. A Level Global spokesman said it is “fully operational” and continues “to work diligently for the benefit of our investors.”

The broad investigation illustrates how law-enforcement agencies are using an increasingly wide range of tools to pursue alleged insider-trading rings. Insider trading has been difficult to prove to juries, since law-enforcement agencies need to demonstrate the intent to defraud.

Some aspects of the current probe could be particularly difficult to prove, if charges are brought. Some legal specialists say authorities appear to be seeking to criminalize typical market behavior, such as hedge funds seeking to gain an edge by gathering intelligence on a company from a wide range of sources.

The issue is blurry because insider trading isn’t defined by statute. The dividing line between criminal and legitimate behavior has evolved in cases stretching back decades, as courts interpret the antifraud provisions of securities laws enacted after the 1929 stock-market crash.

Level Global, based in Greenwich, Conn., is run by David Ganek, a former SAC Capital trader, and manages about $4 billion. Diamondback Capital, in Stamford, Conn., oversees more than $5 billion in assets.

Loch Capital, based in Boston, had $750 million in assets at the start of this year, according to SEC filings. The firm, run by brothers Timothy and Todd McSweeney, didn’t return messages seeking comment.

There appear to be ties among some of the players being investigated. Level Global partner Anthony Chiasson is a former client of John Kinnucan, a Portland, Ore., analyst who was visited by FBI agents last month. Mr. Kinnucan said Monday that Level Global cancelled Mr. Chiasson’s subscription to his service in August because the firm was not happy with the product.

People close to the situation say Mr. Chiasson also was an associate of former Galleon Group fund manager Todd Deutsch, whose activities the Journal has reported are being examined. Galleon was ensnared in an insider-trading case last year that has generated 14 guilty pleas. Mr. Chiasson didn’t respond to requests for comment.

Mr. Deutsch, who received a subpoena last fall, and Mr. Chiasson spoke frequently and exchanged stock ideas, people close to the matter say. Mr. Deutsch’s lawyer declined to comment. Mr. Deutsch worked at SAC prior to Galleon.

A criminal complaint against a cooperating witness in the Galleon case, hedge-fund manager Steven Fortuna, said that a Boston trader provided him with nonpublic information about a data-storage hardware firm that people familiar with the matter say is EMC Corp.

The individual referred to in that complaint is former Balyasny analyst Mark Adams, who once worked at the fund’s Boston office, these people say. Mr. Adams, who also had worked as an SAC analyst, didn’t return calls for comment. Mr. Fortuna declined to comment.

By Susan Pulliam, Michael Rothfeld and Jenny Strasburg. Jean Eaglesham contributed to this article.

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  1. Nyak Gala Nov. 23, 2010 at 10:28 a.m.

    As far as I know within any laws of any country it is against the law to destroy any potential materials. I do agree that these are serious offences which people cross the line. I think once something is being searched or being put under investigation, any material that may be valueable to the case should be taken care of properly and kept where it would not affect the case.

    With fianances there is always the question of ethnics and what is right and what is wrong. I believe that those such agencies such as banks or other financial services should be subjected to their own type of ethic board because it is very true, we do not know what they are up to with people’s money and business. Its sad that people we trust with our money behave in such ways that is very questionable, even when they are taping themselves showing or making idiots out of themselves. How does one even begin to trust? They are given access to people’s personal credit history etc. These people abuse that privelidge everyday. So I am asking someone to consider setting up a board ensuring that people’s information is kept confidential at all times.

  2. shourlsok Dec. 2, 2010 at 11:41 a.m.

    Охуенный блог! Искони искал блог для схожею тематику с моей, и мне кажется я его нашел! Будем друзьями? :)