Remember back in November 2010 when the FBI launched a series of raids on hedge funds including Level Global Investors LP and Diamondback Capital Management LLC? These raids ultimately led to the convictions of Level Global co-founder Anthony Chiasson and Diamondback Capital’s Todd Newman on criminal insider trading charges. Shortly thereafter, Level Global went out of business in 2011, 65 Level Global employees lost their jobs, and Level Global settled the SEC's insider trading charges for over $20 million in 2013.

On appeal, Chiasson and Newman argued that because they did not know that the tipper of the insider information at issue received any benefit for doing so, the case against them must be thrown out. In December, as I've previously discussed here, the Second Circuit agreed with Chiasson and Newman. The Second Circuit held that in the context of an insider trading prosecution, a corporate insider commits no breach of fiduciary duty unless he receives a personal benefit in exchange for the information, and that a "tippee is liable only if he knows or should have known of the breach.” Accordingly, the court reversed the convictions of Newman and Chiasson on all counts and instructed the trial court to dismiss the indictment against them with prejudice.

 

According to Level Global co-founder David Ganek, however, the vindication of his co-founder Chiasson by the Second Circuit is hardly the end of this story. Yesterday, Ganek announced that he has filed an unusual lawsuit against U.S. Attorney Preet Bharara and other prosecutors and FBI supervisors and agents who were allegedly involved in the raid on Level Global. 

 

Ganek claims that the high-profile FBI search of Level Global's office, which tarnished the firm's reputation and led to its rapid demise, was based on "a fabricated claim falsely attributed to a government informant. The government affidavit supporting the search warrant request, written by an FBI special agent and supposedly reviewed by seasoned prosecutors, included a material false statement." According to Ganek, the affidavit falsely represented that Ganek was involved in insider trading. Ganek added that prosecutors never did use any of the evidence gathered from the raid during Chiasson's trial. 

 

White collar crime experts told the NYT that lawsuits such as Ganek's charging prosecutors with wrongdoing are very difficult to win. Michael Bachner told the NYT that Ganek would need to "demonstrate the contents of the affidavit were made malicious and false. That’s very hard to prove.”

 

Topics