* Diamondback updates investors on redemptions
* So far investors want to remove 9.4 pct of capital
* Investors have until Feb 15 to submit notices
By Svea Herbst-Bayliss
BOSTON, Feb 8 (Reuters) - Investors in Diamondback Capital, one of four hedge funds raided last year as part of the government's insider trading probe, have asked to take out $534 million by the end of March, the firm said.
In a letter to investors sent earlier this month and obtained by Reuters on Tuesday, Diamondback's founders -- Richard Schimel and Larry Sapanski -- wrote that redemption requests total about 9.38 percent of the firm's capital.
Investors including pension funds such as the state of New Mexico would have until Feb. 15 to tell the firm if they want to exit.
A spokeswoman for the fund declined to comment.
To calm frayed nerves, the pair -- who previously worked as traders for hedge fund powerhouse SAC Capital Advisors -- wrote that several large investors have assured the fund of their plans to stay invested in the firm's two portfolios: Diamondback Partners LP and Diamondback Offshore Fund Ltd.
"Several large investors, including the investor group with the largest amount of unlocked capital, have expressed their current intention to remain invested at or close to their current levels," the letter said.
Although many firms allow investors to rescind redemption notices if they change their minds, Diamondback told investors that they will be unable to accommodate investors seeking to "revoke redemptions after submission."
Diamondback along with Level Global Investors, Loch Capital Management and Barai Capital Management were raided by federal agents in November. [ID:nN22281945] Samir Barai was arrested and charged with insider trading on Tuesday. [ID:nN08271707]
Federal agents also arrested and charged another former SAC Capital Advisors money manager with insider trading and a second former SAC portfolio manager pleaded guilty to the same charges and has been cooperating with the government's probe.
The three other hedge fund firms -- Diamondback, Level Global and Loch -- said previously that they were not the target of the government's probe and were cooperating.
Nonetheless the raids raised concerns among investors who clamored for more information as some people went a step further and prepared to get their money back.
Diamondback told investors that about 64 percent of its assets are eligible to be withdrawn without penalty at the end of the first quarter.
(Reporting by Svea Herbst-Bayliss)