Updated Nov. 29, 2010
Diamondback Capital Management, one of three hedge funds searched by the FBI last week, said it has received a federal grand jury subpoena and is cooperating in a U.S. probe being conducted in New York.
The firm said it was told by the government it isn't the target of the probe and that the raid was focused on one of its portfolio managers, who was put on leave, according to a letter sent Monday to investors.
Diamondback was served with a search warrant on Nov. 22 and received a grand jury subpoena last week, it said in Monday's letter.
“The warrant appears to be focused on a single employee (a portfolio manager), as well as on a former employee who reported to that employee,” Diamondback co-founders Lawrence Sapanski and Rich Schimel said in the letter, a copy of which was obtained by Bloomberg News.
Hedge funds Level Global Investors and Loch Capital Management also had their offices raided by the FBI on Nov. 22. Janus Capital Group and Wellington Management were among firms that received information requests last week as part of the government's insider-trading investigation.
Level Global said in a letter to investors that it met with the U.S. Attorney's Office on Nov. 23 and that the government said on Monday it wasn't a target of the probe.
“Nor, in fact, has the firm been alleged to have engaged in any misconduct or wrongdoing,” Level Global said in the letter, a copy of which was obtained by Bloomberg News.
U.S. Attorney General Eric Holder on Monday confirmed that the Justice Department is conducting a criminal investigation related to illegal trading on Wall Street.
In response to questions about the probe of insider trading, Mr. Holder said an “investigation is ongoing” and described it as “very serious.” Mr. Holder was questioned at a news conference at the Justice Department in Washington.
“I don't want to get into the details,” he said. The investigation is being conducted by the office of U.S. Attorney Preet Bharara in Manhattan, Holder said.
Jessie Erwin, a spokeswoman for Mr. Bharara's office, declined to comment on the investigation. Jim Margolin, a spokesman for the FBI's New York office, also declined to comment.
Diamondback said Monday that the subpoena it received “is similar to those received by many other market participants.”
The fund said that it received a federal grand jury subpoena “seeking a broad range of information in connection with our trading and research activities” and that it is “fully cooperating” with producing the information sought by the U.S.
Diamondback, which oversees about $5.8 billion in assets, said several of its 135 investment professionals use industry research consultants.
The firm has a policy and set of procedures designed to avoid having any employee receive or misuse material nonpublic information, according to the letter.
“One of the principal areas on which the government appears to be focused is the use of industry research consultants,” it said in the letter.
A day after the FBI searches, Steven A. Cohen's SAC Capital Advisors LP got a government subpoena, said a person familiar with the matter who declined to be identified because the matter is private. No allegation of wrongdoing has been made against SAC, which manages $12 billion. Jonathan Gasthalter, an SAC spokesman, declined to comment.
