Level Global Investors, one of the hedge fund firms raided by the FBI in November as part of a federal insider-trading probe, decided to close and return cash to clients, according to a letter sent to investors.
David Ganek, who founded the $4 billion fund in 2003 with Anthony Chiasson, after they both left SAC Capital Advisors, said he expects the firm to sell all of its holdings by the end of March.
“Unfortunately, the ongoing government investigation presents significant challenges to maintaining our collective focus,” Mr. Ganek wrote in a letter Friday.
Level Global, which last year sold a stake to a leveraged-buyout fund run by Goldman Sachs Group, was raided in November by the FBI. The hedge fund had received withdrawal requests of about 20% of its assets for the end of March, according to a person familiar with the matter who asked not to be identified because the information is private.
The fund's investors had until the end of February to put in redemption notices for March 31, according to the letter, and Level Global executives knew that withdrawals for March and the end of June could be significant.
“So, while we may be able to continue to operate Level Global, without the appropriate scale and ability to invest with the same strategy, it would not be the business we promised to our investors,” Mr. Ganek wrote.
Level Global, with offices in New York and Connecticut, isn't a target of the U.S. government's investigation and hasn't been alleged to have engaged in any misconduct, according to the letter.
Mr. Ganek said in the letter that the firm had worked with “external legal advisers” to perform an independent review of its electronic communications and technology-related trading records, and conduct interviews.
“After learning the results of their in-depth review, I remain highly confident that my conduct in leading the firm and its investment process was lawful and ethical at all times,” he said.
A spokesman for Level Global and a spokeswoman for New York-based Goldman declined to comment.
Barai Capital Management, Diamondback Capital Management and Loch Capital Management were also raided by the FBI in November. Barai Capital, based in New York, said last month that it was closing.
Diamondback Capital, the $5.8 billion fund run by Rich Schimel and Lawrence Sapanski, told clients Friday it received withdrawal requests of 12%, or $722 million, for the end of March. Clients of the Stamford, Conn.-based firm have until Feb. 15 to submit withdrawal requests for the current quarter. Blackstone Group, an investor with Diamondback that could have pulled its money in March without paying a penalty, plans to stay invested in the fund, said two people briefed on the matter.
Mark O'Toole, a spokesman for Boston-based Loch Capital, didn't return an e-mail seeking a comment.
Level Global has produced an annualized return of 9% net of fees since inception, compared with 3.3% for the Standard & Poor's 500 index, according to the letter.