* STG Capital closes even though fund was up last year
* Hedge fund did business with firm under scrutiny
* Barai Capital closes, was raided in November
By Emily Chasan and Matthew Goldstein
NEW YORK, Jan 31 Technology-focused hedge fund
STG Capital, which did business with an expert network firm
that has figured prominently in an ongoing U.S. insider trading
investigation, is shutting down, said people familiar with the
Steven T. Glass, the founder of STG, which once had more
than $200 million under management, notified investors last
week he was shutting down his fund, said one investor familiar
with the situation, who declined to be identified.
STG is the second New York hedge fund to shut down in the
wake of a series of arrests of people associated with Primary
Global Research, a California-based expert network firm that
matches hedge funds with industry consultants.
The Wall Street Journal reported on Monday that Barai
Capital Management, a small $80 million hedge fund raided by
federal agents in November, is also closing.
Four people familiar with the investigation said both STG
and Barai regularly employed Primary Global consultants to
gather information on tech stocks.
Glass said in an email that his fund's relationship with
Primary Global had nothing to do with the closing, but he
declined to elaborate.
"You are factually incorrect in much of that, sir," he
said. "As I informed our investors last week, assets were not
at a critical mass to sustain the business."
Glass opened the fund in 2002 after a stint as a trader at
Kingdon Capital Management. He also previously worked at Credit
Suisse Group AG CSGN.VX and Deutsche Bank AG (DBKGn.DE).
Glass' fund, which most recently had about $150 million, was up
about 8 percent last year, said an investor source. That
compares with gains of about 17 percent in the tech-heavy
According to SEC filings, some of STG's top stock holdings
as of Sept. 30 were STG Semiconductor Corp (LSCC.O), Qualcomm
Inc (QCOM.O) and Apple Inc (AAPL.O).
The closing of STG Capital was reported last week by
Dealbreaker.com. The popular Wall Street blog did not offer any
explanation for the closing of the fund, which takes its name
from its founders initials.
Neither Glass nor anyone associated with STG has been
charged in the investigation, which involves allegations of
industry consultants passing on confidential corporate
information to hedge fund traders and analysts.
So far, at least eight people with links to Primary Global
have been charged with helping to leak confidential information
to hedge fund customers. Federal prosecutors have also secured
guilty pleas from a number of cooperating witnesses and sources
say authorities are likely to make a new round of arrests in
The $1.9 trillion hedge fund world was rocked in November
when agents with the Federal Bureau of Investigation raided
three funds in connection with the insider trading
investigation on Nov. 22. Soon after, federal prosecutors in
New York sent out dozen of subpoenas to hedge funds and mutual
funds that did business with a variety of expert network firms
and consultants, including Primary Global.
But the investigation, which began with a bang, has since
moved along at a snail's pace. Securities lawyers said that is
not unexpected given that authorities tend to focus on
lower-level suspects first.
"Prosecutors sometimes go after smaller funds and companies
in the hopes that those companies will cooperate and provide
evidence against larger firms," said Robert Heim, a securities
lawyer and former assistant regional director with the
Securities and Exchange Commission.
Meanwhile, the three hedge fund raided by the FBI on Nov.
22 -- Diamondback Capital Management, Level Global and Loch
Capital Management -- all have denied any wrongdoing.
Earlier this month, Reuters reported that a fourth hedge
fund was raided by the FBI, but the fund's name remained a
mystery. The Wall Street Journal reported on Monday that the
mystery fund was Barai Capital, a small hedge fund founded by
Samir Barai, formerly with Citigroup Inc (C.N).
Evan Barr, an attorney for Barai, declined to comment on
Barai founded his fund after leaving Citigroup's
alternative investment group. In December, federal prosecutors
charged Winifred Jiau, a Primary Global consultant, with
passing on confidential information to the founder of an
unnamed hedge fund. People familiar with the investigation
confirmed the Journal's report the unnamed hedge fund is
(Reported by Emily Chasan and Matthew Goldstein; editing by