Diamondback Capital Management LLC, among the hedge funds raided by the FBI two years ago in the U.S. investigation of insider trading on Wall Street, is liquidating after an exodus of clients.
The fund received requests from investors to withdraw about $520 million, or 26 percent of its assets, for the end of the year, co-founders Richard Schimel and Lawrence Sapanski said today in a client letter. The Stamford, Connecticut-based firm, which has 133 employees, plans to return most of clients’ cash next month.
The redemptions left Diamondback with $1.5 billion assets, down from from $5.8 billion in November 2010, when its offices were searched by the Federal Bureau of Investigation. Three other hedge funds that were also raided at the time, including Level Global Investors LP, have shuttered. Former Diamondback portfolio manager Todd Newman is on trial in Manhattan on charges that he was part of a “criminal club” of friends and co-workers who made trades based on illegal tips.
“It’s difficult for anyone to survive once they’re connected with the insider-trading probe,” said Ronen Schwartzman, founder of Ten Capital Advisors LLC, a New York- based firm that advises clients on investing in hedge funds.
Steve Bruce, a spokesman for Diamondback, declined to comment beyond the letter.
SEC Settlement
Diamondback, which has 22 investment teams, agreed earlier this year to pay more than $9 million to resolve a Securities and Exchange Commission lawsuit over trades made in 2008 and 2009 by Newman and Jesse Tortora, a former analyst who worked with Newman. Tortora has pleaded guilty to securities fraud and is cooperating with the government.
The office of Manhattan U.S. Attorney Preet Bharara agreed not to prosecute Diamondback for the actions of the Newman and Tortora and said the co-founders weren’t aware of their misconduct.
A third Diamondback employee, portfolio manager Anthony Scolaro, pleaded guilty to conspiracy and securities fraud in November 2010. His cooperation with the government’s insider- trading probe led to the raid on Diamondback.
“We especially appreciate your patience and support during the last two difficult years during which we reached closure of the government’s investigation,” Schimel and Sapanski said in the letter, a copy of which was obtained by Bloomberg.