* New Castle Partners co-founder on leave, consultant out
* New Castle says will stay in business
* Hedge fund hires law firm Skadden Arps, will cooperate
* Consultant had tax lien as she invested on insider tip
* Union Bancaire Privee to liquidate New Castle-run fund
(Adds detail on Swiss bank liquidating a New Castle fund)
By Joseph A. Giannone and Grant McCool
NEW YORK, Oct 20 New Castle Partners LLC, a
hedge fund swept up in the biggest insider-trading scandal in
years, said co-founder Mark Kurland has taken a leave of
absence and that Danielle Chiesi, a consultant, is no longer
associated with the firm.
Kurland and Chiesi were among six people, including Galleon
Group founder Raj Rajaratnam, charged on Friday by the U.S.
Justice Department and the U.S. Securities and Exchange
Commission, accused of reaping more than $20 million by trading
on inside information in a dozen companies. [ID:nN16545101]
The news was widely expected to trigger an exodus of
customers from the two funds. New Castle, formerly part of Bear
Stearns Asset Management that manages about $900 million of
assets, urged investors to stay in place.
In a letter to investors Monday, principals Robert Reitzes
and Scott Merves said they "intend to be personally invested"
with the firm's funds.
"Our doors are open, our team is intact," they wrote.
"Despite our initial shock, we are determined to successfully
navigate through this period."
Still, many investors typically will not stick around firms
implicated in legal and regulatory scandal. Switzerland's Union
Bancaire Privee said it was liquidating a $50 million market
neutral U.S. equity fund launched in July that was managed by
New Castle and distributed in Europe to retail investors .
In one of two lawsuits filed Friday, prosecutors accused
Kurland and Chiesi of collecting and trading on information
from at least July 2008 through October 2008, including tips
allegedly provided by International Business Machines Corp
(IBM.N) senior executive Robert Moffatt.
The federal insider-trading charges carry a possible
maximum prison term of 20 years.
New Castle said it is cooperating with federal authorities
and has hired law firm Skadden, Arps, Slate, Meagher & Flom.
Kurland, who headed Bear Stearns Asset Management in the
early 1990s, launched New Castle with Reitzes in 1995. When
JPMorgan Chase & Co (JPM.N) acquired the nearly insolvent Bear
Stearns in March 2008, it spun off three hedge funds and two
managed accounts to a team led by Kurland, Reitzes and Merves.
Reitzes, reached at his Times Square offices, referred
calls to a spokesman.
Castle last year linked up with Mariner Investment Group, a
17-year-old New York firm that invests in hedge funds and is
led by Chairman William Michaelcheck, a former senior managing
director at Bear.
JPMorgan officials declined to comment.
"New Castle remains fully committed to serving the best
interests of its clients," it said in an emailed statement.
"The firm manages liquid equity securities strategies and has a
highly experienced and cohesive investment management team that
remains fully engaged."
Chiesi had a debt of more than $63,226 around the time in
2008 that investigators were listening to her phone calls,
public records in the New York City Register's Office show. The
Internal Revenue Service filed a tax lien on Aug. 12, 2008,
against Chiesi, 43. She paid the debt on Nov. 7, 2008, the
Her attorney could not immediately be reached for comment.
The criminal complaint said U.S. investigators obtained
court approval in August and again in September to tap two
telephone land lines and a cell phone used by Chiesi.
She was accused of short-selling shares of Akamai
Technologies Inc (AKAM.O) on July 25, 2008, and buying shares
of Advanced Micro Devices Inc AMD.N based on inside
information on Aug. 15 and Sept. 30 the same year.
The transactions were executed in accounts affiliated with
New Castle and earned illegal profits of $2.4 million,
according to FBI and SEC investigators.
Other people in Rajaratnam's network of informants included
McKinsey & Co consultant Anil Kumar, a venture capital
executive at Intel Corp (INTC.O), Rajiv Goel, and IBM's
(Reporting by Joseph A. Giannone and Grant McCool; Editing by
John Wallace, Gerald E. McCormick, Gary Hill)