| NEW YORK
NEW YORK Nov 22 The three hedge funds raided
by U.S. authorities on Monday have faced investor outflows or
seen some high profile staff departures in the past year.
The offices of Boston-based hedge fund Loch Capital
Management and Connecticut-based funds Level Global Investors
and Diamondback Capital Management LLC were searched on Monday
in connection with a widening probe by U.S. officials into
insider trading. [ID:nN22281945]
Lawyers familiar with the multi-pronged investigation said
the government appears to be focusing on networks of traders
and managers amid suspicions by authorities the funds traded on
nonpublic information about stocks.
Two of the funds, Diamondback and Level Global, were
started by alumni of powerhouse $12 billion hedge fund SAC
Capital Advisors, whose manager Steven Cohen is famed for his
ability to consistently beat the S&P 500, as well as his lavish
art collection. Their offices in Stamford and Greenwich are
each less than fifteen miles away from SAC's Stamford
Diamondback, a multistrategy fund that oversees about $5
billion, has had difficulty since 2008 when the fund lost
control of a huge portion of its capital in the Lehman
bankruptcy. Lehman had been the fund's prime broker and
maintained accounts on behalf of Diamondback. The fund has
filed claims in the bankruptcy case for more than $800 million,
according to court records. Last year, the fund was fined by
the U.S. Securities and Exchange Commission for making short
sales prior to public offerings by four companies.
Returns from the Diamondback Partners fund, have been
inconsistent, according to reports in industry magazine
Absolute Return, which said the fund was up about 25 percent in
2009, up 1.3 percent in 2008, up 19 percent in 2007, and up
just 2.2 percent through April this year. Among its biggest
stock holdings are El Paso Corp EP.N, Canadian Natural
Resources Ltd (CNQ.N) and JPMorgan Chase & Co (JPM.N),
according to securities filings.
The fund, however, has faced some high profile departures.
Chad Loweth, one of the three co-founders left earlier this
year, as did Larry Petrella, a top trader who decamped to Tudor
Diamondback's other founders, Larry Sapanski and Richard
Schimel, who left SAC to launch the fund in 2005, remain at the
Joelle Mevi, chief investment officer for the $10 billion
New Mexico Public Employees Retirement Association, which has
$42 million invested with Diamondback, said she is concerned
about the report of an investigation involving the hedge fund,
but is still waiting for more information.
"I don't think anyone likes to see newspaper headlines,"
said Mevi, whose retirement fund upped its commitment to
Diamondback by $5 million this past summer.
She said that, once the pension fund's consulting firm,
Cliffwater LLC, comes back with more on the investigation, she
will make a recommendation to the retirement fund's board.
After their offices were visited by authorities on Monday,
both Diamondback and Level Global said in statements they were
fully cooperating with authorities and are still fully
LEVEL GLOBAL AND LOCH
Level Global Investors, which uses a long-short strategy
and now goes by the name Level Management LP, has offices in
both Greenwich, Connecticut and Manhattan. Among its top
holdings are Virgin Media Inc VMED.O, Monsanto Co (MON.N)
and Apple Inc (AAPL.O).
The $3.5 billion fund was co-founded by ex-SAC employees
David Ganek and Anthony Chiasson in 2003. Ganek and his wife
Danielle live in a $19 million apartment in one of Park
Avenue's toniest buildings and -- like Cohen himself -- are
well-known modern art collectors. Ganek has been a member of
the board of trustees of the Guggenheim museum in New York City
since 2005, according to the museum's website.
But the firm has also seen some top-level departures in the
past year, as its compliance chief, Taki Vasilakis, left for
Morgan Stanley's (MS.N) FrontPoint Partners, and partner
Jeffrey Messina joined Citadel Investment Group. FrontPoint has
recently found itself entangled in another insider trading
Reuters reported in January that investors had been fleeing
tech-oriented Loch Capital, which at one time managed over $2
billion in assets, as close personal ties between its founders
and a key witness in the Galleon insider trading case prompted
investor redemptions. [ID:nN20170567]
The fund, which now oversees about $750 million, has its
biggest positions in Apple, as well as Qualcomm Inc (QCOM.O)
and Google Inc (GOOG.O), according to regulatory filings.
(Reporting by Emily Chasan; additional reporting by Matthew
Goldstein and Ross Kerber in Boston; editing by Andre Grenon)