As the world's banking sector wobbles under the speculation that the political situation in Ireland may hinder hammering out a bail-out solution, the FBI has reportedly descended on the offices of hedge funds on suspicions of insider trading.


The offices of Level Global, founded in 2003 by David Ganeck a former SAC Capital trader, is known to have been raided by FBI agents. A Level Global spokesman said "we can confirm that agents from the FBI visited our offices this morning as part of what we believe to be a broader investigation of the financial services industry discussed in media reports over the weekend. We are cooperating fully with the authorities and, at the same time, we are fully operational and continue to work diligently for the benefit of our investors."

The offices of two other funds, Diamondback Capital Management and Loch Capital Management have also been the subject of FBI searches according to the Wall Street Journal.

There are also reports that the FBI, the Office of Manhattan's US Attorney and the Securities and Exchange Commission are ready to bring charges of alleged insider trading. Banking shares on Wall Street took a hit as a result.

That a search warrant based process has been used as opposed to using grand jury subpoenas points to the seriousness of the government's intent according Jacob Frenkel a former federal prosecutor and SEC lawyer.

This is part of a three year investigation, the focus of which is 'expert networks'. These are communications between investors and employees, both current and former, of the companies they wish to invest in. These networks are widely recognised but are not meant to pass on any confidential information about the companies involved.

If information is being passed then the ordinary investor is being put at an extreme disadvantage and could potentially be fleeced.

The US Attorney Preet Bharara said just last month that he thought that "illegal insider trading is rampant …… the people who are cheating the system include bad actors not only at Wall Street firms, but also at Main Street companies. …… Unlawful insider trading …… is an affront not only to the fairness of the market but also to the rule of law."

Other major industry players under investigation reportedly include SAC, Citadel Asset Management, together with mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management, Deutsche Bank, UBS, and Prudential Securities.

It seems that the raids may not have come as a complete surprise. California research analyst John Kinnucan told several firms that two 'fresh faced eager-beavers from the FBI' has approached him to wear a wire and tape his conversations with SAC. He declined the offer he says.

One wonders whether thus is totally limited to Wall Street, or if we will soon be reading about raids on The City.

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