FBI agents raided the offices of three hedge funds Monday, the government’s latest salvo in an escalating investigation into insider trading on Wall Street.
Two of the hedge funds, Level Global Investors of New York and Diamondback Capital Management of Stamford, Conn., are controlled by alumni of SAC Capital Advisors, the Greenwich, Conn., hedge fund colossus run by billionaire Steven A. Cohen, who is known for his stellar returns and uncanny trading talents.
The third firm, Loch Capital Management, is a Boston hedge fund focused on technology investments.
More searches could be executed in the coming days, according to a person briefed on the investigation who spoke only on the condition of anonymity.
“We are conducting court-authorized search warrants as part of an ongoing investigation,” said Richard Kolko, a supervisory special agent at the FBI’s New York office. “The matter is sealed. We have no further comment.”
No one at the firms and neither Cohen nor the SAC has been accused of any wrongdoing. An SAC spokesman declined to comment.
A spokesman for Level Global confirmed that FBI agents visited the fund’s offices and said that the company was cooperating fully with authorities. A Diamondback spokesman said the firm received an FBI inquiry and was voluntarily cooperating.
A lawyer for Loch Capital did not return telephone calls and e-mails seeking comment.
Taking the aggressive tack of using search warrants to raid the firms’ offices, rather than issuing grand jury subpoenas demanding the production of documents, suggests that federal prosecutors are concerned about the destruction of evidence related to possible crimes, lawyers say.
It is also possible that the government has already served these firms with subpoenas, and it is looking to scoop up any remaining documents.
“This guarantees that the government can quickly and securely get its hand on evidence,” said Fernando L. Aenlle-Rocha, a lawyer at White & Case and former federal prosecutor who is not involved in the investigation. “Tactics such as this tend to make people at the targets very nervous and may even prompt some employees to speak to government agents.”
The FBI raids came after media reports over the weekend that the Justice Department and the Securities and Exchange Commission were readying a round of criminal and civil charges related to insider trading.
This aggressive government tactic is part of a broader investigation of insider trading led by Preet Bharara, the U.S. attorney for Manhattan.