(Updates Level Global statement in seventh paragraph.)
Dec. 1 (Bloomberg) -- Neuberger Berman Group LLC, Level Global Investors LP and Diamondback Capital Management LLC employees may face criminal charges as part of an insider- trading probe by U.S. authorities in New York, a person familiar with the matter said.
The charges may be filed as early as this month, said another person familiar with the probe who also wasn’t authorized to speak because the matter isn’t public. The new allegations stem from a four-year federal probe by the office of Manhattan U.S. Attorney Preet Bharara and the Federal Bureau of Investigation in New York, the first person said.
Bharara’s office has charged at least 56 people with insider-trading and more than 50 have pleaded guilty or been convicted after trial since 2009. They included Galleon Group LLC co-founder Raj Rajaratnam, who was convicted in May and sentenced to 11 years in prison.
James Margolin, a spokesman for the FBI in New York, declined to comment yesterday on possible new charges in the probe. Ellen Davis, a spokeswoman for Bharara’s office, also declined to comment.
On Nov. 22, 2010, FBI agents from New York and Boston executed search warrants at the offices of Level Global and Diamondback, hedge funds founded by former employees of SAC Capital Advisors LP.
Steve Bruce, a spokesman for Stamford, Connecticut-based Diamondback, declined to comment on the probe. Level Global said in a statement that it had fired an employee named by the Wall Street Journal, which reported the possible charges earlier.
The employee was terminated “fully six months before the search, for violating company policies relating to his sharing of confidential Level Global proprietary information with industry peers,” according to the statement.
Rich Chimberg, an outside spokesman for Neuberger Berman, said the firm was unaware of any probe involving an employee identified by the paper as an analyst for the firm.
“We have not heard of any such allegation or investigation,” Chimberg said in an e-mailed statement.
Neither employee could be immediately reached for comment.
Neuberger Berman, based in New York, manages more than $183 billion for clients including pension funds.
Level Global told clients in February that it was shutting, eight years after David Ganek and Anthony Chiasson founded the hedge fund, because of the U.S. probe. They said at the time that Level Global wasn’t a target of the investigation nor had it been alleged to have engaged in any misconduct.
Two other hedge funds that were also raided last year, Barai Capital Management LP in New York and Loch Capital Management LLC in Boston, also have closed.
Diamondback, which managed about $5.8 billion a year ago, now oversees $3.5 billion as investors pulled their money after the firm placed one of its technology portfolio managers on leave following the FBI raid.
Anthony Scolaro, another former Diamondback portfolio manager, pleaded guilty to conspiracy and securities fraud in November, 2010, according to a plea agreement unsealed in May.
Scolaro admitted to conspiring with Franz Tudor, a trader at New York-based Schottenfeld Group LLC, from October 2007 to sometime in 2008. Tudor, who cooperated with prosecutors after pleading guilty to securities fraud in October 2009, gave Scolaro an illegal tip on the acquisition of Axcan Pharma Inc., which was announced Nov. 29, 2007, according to the criminal charges.
“The defendant, Franz Tudor, and others known and unknown, executed trades in the securities of Axcan prior to the public announcement of the acquisition, earning thousands of dollars in unlawful profits,” the government alleged in court documents.
The charges against Scolaro made public for the first time the connection between the federal probe of Galleon Group, where Tudor also worked, and the November 2010 FBI raids on hedge funds. The searches were carried out as part of an insider- trading investigation of hedge fund and expert networking firms.
Scolaro’s plea agreement, dated Nov. 12, 2010, required him to cooperate with the government’s investigation and to testify as a prosecution witness at any trial in the matter.
Some of the evidence seized by FBI during last year’s searches of hedge funds was used in the trial of James Fleishman, a former Primary Global Research LLC manager who was convicted Sept. 20 of conspiracy and securities fraud.
Primary Global Payments
Fleishman, a former sales manager at the Mountain View, California-based firm, was accused of obtaining inside information from certain firm consultants and providing the data to clients. Prosecutors said he facilitated telephone calls and meetings among consultants “knowing that inside information would be passed by the firm consultant to the firm clients.”
During Fleishman’s trial in federal court in Manhattan, prosecutors entered into evidence records showing that Level Global and Diamondback paid hundreds of thousands of dollars to Primary Global for access to its consultants and information.
Level Global paid Primary Global $231,000 in 2010 while Diamondback spent $219,000, trial evidence showed. In 2009, Level Global paid Primary Global’s securities unit more than $199,000 while Diamondback paid more than $276,000, records show.
Jurors were shown dozens of e-mails containing nonpublic information from Primary Global consultants about their technology companies that Fleishman sent to his firm’s clients, including a Neuberger Berman employee. After one juror informed the judge that he recognized the name of that Neuberger Berman employee, prosecutors asked for a private conference with the judge.
The record of that sidebar conference was later sealed after Assistant U.S. Attorney Antonia Apps told the judge in open court that the matter couldn’t be publicly discussed, citing “law enforcement reasons.”
--Editors: Michael Hytha, Douglas Wong, Anthony Aarons
To contact the reporter on this story: Patricia Hurtado in New York at firstname.lastname@example.org; Saijel Kishan in New York at email@example.com
To contact the editor responsible for this story: Michael Hytha at firstname.lastname@example.org; Christian Baumgaertel at email@example.com