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Casualty of Preet Bharara's insider trading crackdown wants him held 'accountable'

David Ganek

Hedge fund manager David Ganek wants the next US Attorney for the Southern District of New York to hold Preet Bharara and Southern District prosecutors and FBI agents “accountable” for a public raid on his office that never led to his arrest.

“I am hopeful that a new US Attorney with no links to the wrongful search of my office will finally hold someone accountable and publicly explain why a false affidavit that accused me of insider trading was submitted to the court,” Ganek said in an emailed statement to Yahoo Finance.

Ganek is suing Bharara, along with 14 other members of the US Attorney’s office in Manhattan and the FBI, claiming they led a “recklessly publicized” raid that resulted in the collapse of his once-$4-billion hedge fund, Level Global.

On Friday, Attorney General Jeff Sessions asked Bharara to resign, along with 45 other US attorneys, all of whom were appointed by President Barack Obama. Over the weekend, Bharara tweeted that he didn’t resign, but that he was “fired.”

Known as the “Sheriff of Wall Street,” Bharara had amassed a track record of dozens of insider trading convictions. His track record certainly wasn’t perfect, though.

Level Global raid

On November 22, 2010, the FBI raided hedge fund Level Global’s midtown Manhattan offices at 888 7th Avenue. Ganek’s personal office, financial records, photographs, address book, phone records, and cellphone were subject to the search.

The search warrant was obtained using a sealed 37-page affidavit that stated that former Level Global research analyst Sam Adondakis “obtained Inside Information from insiders at public companies through third-party consultants . . . . On Certain occasions, ADONDAKIS provided this Inside Information to DAVID GANEK, . . . and GANEK . . . executed and caused others to execute certain securities transactions based, in part, on the Inside Information, and that ADONDAKIS informed GANEK . . . of the sources of the Inside Information.”

Ganek claims that those statements about him were “fabricated.” Adondakis had been asked to leave the company earlier that year for violating compliance protocols, according to Ganek’s complaint.

In early February, an attorney for Ganek reached out to Bharara’s office and informed them that Level Global would close unless the US Attorney’s Office publicly clarified that Ganek was not the target of the investigation.

Days later, Level Global became the first casualty of the massive insider trading crackdown. After being hit with redemption requests, Level Global sent a letter to investors, dated February 11, 2011, that it would be returning capital and shutting its doors. All 65 employees of the fund lost their jobs.

In January 2012, 14 months after the raid on Level Global’s offices, the fund’s co-founder, Anthony Chiasson, was arrested and charged with trading on insider information in Dell and Nvidia stocks. Chiasson was a co-defendant with Todd Newman, a former portfolio manager at Diamondback Capital, a now-defunct hedge fund.

Ganek was never charged with any wrongdoing.

By December 2012, Chiasson and Newman were convicted. Shortly after, Level Global agreed to pay the SEC a $21.5 million settlement.

Convictions tossed

Two years later, though, the US Court of Appeals for the Second Circuit, which includes New York City, tossed the insider trading convictions for Chiasson and Newman.

In February 2015, four years after Level Global closed its doors, Ganek filed his lawsuit. Ganek’s lawsuit claims the sealed affidavit used to secure the search warrant of him contained “false statements.”

The defendants filed a motion to dismiss.

In July 2015, then-Solicitor General Donald Verrilli filed a petition asking Supreme Court to review the appellate court’s decision to toss the Chiasson and Newman convictions. That petition was rejected. By October 2015, Bharara had dismissed charges against former SAC Capital trader Michael Steinberg and six others who pleaded guilty to insider trading in the Chiasson-Newman case.

By March 2016, Judge William Pauley largely denied the defendants’ motion to dismiss Ganek’s suit. In a memo, Judge Pauley wrote that “discovery is now appropriate to ascertain whether this case is about a simple misunderstanding or whether something more troubling was afoot.”

Oral arguments in the Second Circuit are scheduled to take place on March 24.

Julia La Roche is a finance reporter at Yahoo Finance.

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