* Court filing identifies potential inside trading at Loch
* Loch was one of three hedge funds raided last November
* Prosecutors gather mountain of evidence in expert probe
* Amount of evidence may explain why probe unfolds slowly
By Matthew Goldstein
NEW YORK, May 27 When federal agents raided the
offices of Boston-based hedge fund Loch Capital Management last
November, they already had evidence that one of the hedge
fund's founders had obtained "inside information," according to
a court filing.
Todd McSweeney may have used the information from a
so-called expert network firm to engage in wrongful trading,
according to a wiretap application. The document came to light
when it was attached to a motion filed in a related case.
Loch Capital, which at one stage managed as much as $2
billion, and two other hedge funds, Diamondback Capital
Management and Level Global Investors, were raided in November
as part of a government probe of expert networks, which match
hedge funds with corporate executives moonlighting as industry
Prosecutors have found that some consultants have gone
beyond providing industry insights and instead have sold
No one from the three hedge funds has been charged in
connection with the expert network probe and Loch Capital said
last November that neither Todd McSweeney nor his brother Tim
were targets of the raid.
However, the court filing on Monday shows the government
amassing a mountain of evidence and leads for investigators to
follow, which may explain why the probe is moving so slowly.
It quotes Federal Bureau of Investigation special agent
James Hinkle saying that a confidential informant had recorded
a conversation with Todd McSweeney on April 15 2009.
McSweeney told the informant he had paid expert network
firm Primary Global Research "to arrange for conversations with
PGR's consultants or experts who provided McSweeney with inside
information," according to Hinkle.
A lawyer for Loch Capital, which shut its doors soon after
the FBI raid on Nov. 22, did not return a phone call seeking
comment. McSweeney could not be reached for comment.
At its peak, Loch Capital was one of Boston's largest hedge
fund and had attracted money from investment funds run by
Citigroup, Credit Suisse and American International Group.
The brothers, who grew-up in the Boston suburb of
Lexington, graduated from Clark University in nearby Worcester
and earned business degrees from Northeastern University.
The filing came in a case against James Fleishman, a former
PGR executive, who is accused of conspiring to help the firm's
hedge fund clients get access to consultants who might pass on
The California-based Primary Global has emerged as the
focal point of the government's probe of expert networks, the
newest phase in its three-year crackdown on insider trading.
Since November, U.S prosecutors in New York have charged more
than a dozen people who either worked for Primary Global or
allegedly received inside tips from Primary Global while
working for a hedge fund.
One of those defendants, hedge fund manager Samir Barai,
was expected to plead guilty to trading on illegal tips,
according to court records.
Prosecutors have amassed more than 1,800 audio recordings,
e-mails from 100 people, more than a 1,000 pages of documents
provided by cooperating witnesses and more than 3,000 pages of
notes by investigators and wiretap applications, according to
the documents filed by Fleishman's lawyers.
Additionally, prosecutors have said that they also had
obtained "instant message" communications between employees of
Primary Global and traders and analysts with hedge funds SAC
Capital Advisors, Balyasny Asset Management and Coatue
Management. That revelation came in a letter from prosecutors
to Fleishman's lawyers on April 8, which was also contained in
Earlier this year, two former employees of Steven Cohen's
SAC Capital pleaded guilty to trading on illegal tips obtained
from a former Primary Global consultant. Federal agents have
been investigating allegations of wrongful trading at SAC
Capital since at least 2007. Authorities have not charged Cohen
or any of his top traders with doing anything improper.
Still, the court filing by Fleischman's attorney gives a
sense of the scope of the current investigation and why some
six months since the raids, there has been little sign of
further action by the authorities.
Indeed, the tape recording of Todd McSweeney was made in
April 2009 -- roughly six months before the arrest of Galleon
Group founder Raj Rajaratnam and dozens of others. Rajaratnam
was convicted May 11 by a federal jury on 14 counts of insider
trading following a nearly two-month trial.
As for Loch Capital, it's name first surfaced in the
insider trading investigation in January 2010, when Reuters
reported that investors were pulling money from the hedge fund
because of the Galleon investigation. Investors were redeeming
money from the tech-focused hedge fund because the McSweeneys
were close friends with former hedge manager Steven Fortuna,
who was arrested in the Galleon case.
Fortuna, the former manager of S2 Capital, pleaded guilty
on Nov. 5, 2009, and has been cooperating with federal
authorities. In a court proceeding on May 23, Assistant U.S.
Attorney Jonathan Streeter said Fortuna was continuing to
cooperate and provide information on individuals "that we are
(Reported by Matthew Goldstein; Editing by Eddie Evans,