U.S. appeals court rejects hedge fund founder's FBI misconduct case

NEW YORK, Oct 17 (Reuters) - A U.S. appeals court on Tuesday dismissed a lawsuit by hedge fund founder David Ganek, who claimed federal authorities lied to get a search warrant against his fund in an insider trading investigation.

A unanimous panel of the 2nd U.S. Circuit Court of Appeals in Manhattan ruled that, even if the Federal Bureau of Investigation did make false statements, it had good cause for a warrant to search the offices of Ganek’s Level Global Investors anyway.

The ruling reversed a decision by a lower court judge, who had declined to dismiss Ganek’s claims that the search violated his right to due process and freedom from unreasonable search under the U.S. Constitution.

“This is a dangerous day for private citizens and a great day for ambitious, attention-seeking prosecutors who are now being rewarded with total immunity even when they lie and leak,” Ganek said in an emailed statement.

James Margolin, a spokesman for the U.S. Attorney’s office in Manhattan, which argued the case for the government, declined to comment.

FBI agents raided Level Global’s offices in 2010, after one of its analysts, Spyridon Adondakis, told them he had traded Dell Inc shares on insider information and shared such information with others at the fund. Level Global shut down soon after that.

In his 2015 lawsuit, filed in Manhattan federal court against multiple people in the FBI and U.S. Attorney’s office, Ganek claimed that in asking a magistrate judge for a warrant for the search, the FBI said Adondakis had told them that he had told Ganek the source of his information about Dell.

However, both Adondakis and an FBI agent who interviewed him later testified that Adondakis never said that. Last year, U.S. District Judge William Pauley refused to dismiss Ganek’s lawsuit.

Circuit Judge Reena Raggi, who wrote Tuesday’s opinion on behalf of an anonymous three-judge panel, said the FBI had grounds for a search based on evidence that insider information had been discussed, and traded on, at Level Global.

“The totality of the circumstances, viewed in a common sense manner, establish at least a ‘fair probability’ that Ganek recognized the inside source of the information in any event,” she wrote. (Reporting By Brendan Pierson in New York; Editing by David Gregorio)