FBI raids seeking documents from three investment firms are related to hedge fund 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 government 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,” 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, and Andy Merrill, a spokesman for Level Global, confirmed the FBI had searched their offices and said they are cooperating. Timothy McSweeney of Boston-based Loch Capital didn’t respond to a phone message seeking comment.
Ellen Davis, a spokeswoman for Bharara, declined to comment.
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. Diamondback has about 215 employees as of Aug. 1, according to an investor letter.
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 New York-based 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 return phone messages seeking comment. Andrea Raphael, a spokeswoman for New York-based Goldman Sachs, and Jonathan Gasthalter, a spokesman for Stamford-based SAC, declined to comment. Goldman fell 3.4 percent, or $5.62, to $161.05 in New York Stock Exchange trading.
The FBI raids follow news last week that another firm, FrontPoint Partners LLC, plans to close down its $1.5 billion health-care hedge funds after a portfolio manager allegedly received tips about the results of Human Genome Sciences Inc. trials for the drug Albuferon, according to a person briefed on the firm’s plans.
The firm expects to return capital to clients before the end of this month, said the person, who asked not to be named because the funds are private.
Dr. Yves Benhamou, 50, a French doctor and former adviser to Rockville, Maryland-based Human Genome, was charged Nov. 2 by Bharara’s office with insider trading and conspiracy. He was granted $3 million bail by a New York judge on Nov. 17.
FrontPoint, a Greenwich-based money-management firm that’s being spun out of Morgan Stanley, said on Nov. 2 it is cooperating with federal authorities in the criminal probe. Dr. Chip Skowron, co-portfolio manager of the firm’s health-care funds who allegedly received the tips from Benhamou, and also a former SAC Capital analyst, was placed on leave pending the outcome of the probe, FrontPoint said.
Diamondback held 440,871 shares of Human Genome Sciences at the end of the third quarter.
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.”