Feds probe insider trading

Updated: 9:20 p.m. ET

Agents of the Federal Bureau of Investigation raided the offices of three hedge funds today as part of what appears to be a wide-ranging probe of insider trading in the financial industry.

The searches of the three funds appears to be part of a wide-ranging probe that's three years old.

Authorities are said to be getting ready to file charges that "could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation," The Wall Street Journal reported over the weekend. (Registration may be required.)

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The story suggested that the probes "could eclipse the impact on the financial industry of any previous such investigation."

Although it's still not clear what charges will be filed, they could end up making public a number of ways insider trading has become a common practice among large groups of traders, sources told the Journal.

The investigations seemed to take a particular focus on the pervasive practice of hiring "expert network" services that provide access to insiders and former insiders at companies for traders who want to obtain the scoop on an industry.

Investigators are also looking into whether Goldman Sachs (GS) disclosed transactions, including health care mergers, in a way that benefited certain investors. The question was whether non-public information was passed along that speculators could trade on.

Goldman Sachs shares closed down 3.4% to $161.05.

Some charges could be filed before the end of the year, the Journal said.

Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research in Portland, Ore., sent an e-mail on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.

The agents were hoping Kinnucan would help in the probe. But the e-mail made clear Kinnucan was not prepared to do so.

According to the Journal, the e-mails were sent to

traders at, among others: hedge-fund firms SAC Capital Advisors and Citadel Asset Management, and mutual-fund firms Janus Capital (JNS), Wellington Management and MFS Investment Management.

Today's FBI hedge-fund raids were conducted on funds that are run by former managers of Steve Cohen's SAC Capital Advisors.

Level Global Investors, based in Greenwich, Conn., is run by David Ganek, a former SAC Capital trader and art collector. He started Level Global in 2003 and earlier this year reported managing about $4 billion in assets.

Diamondback Capital Management, founded in 2005, is managing $5 billion in assets. It's also in nearby Stamford, Conn.

Another FBI official said the agency also searched a third site, at 30 Federal St. in Boston. Hedge fund Loch Capital Management has its headquarters at that address.

A spokesman for Level Global acknowledged the raid took place today.

"We can confirm that agents from the Federal Bureau of Investigation visited our offices this morning as part of what we believe to be a broader investigation," the spokesman said in a statement.

"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."

Any charges would be on top of those filed in an existing case centered on the hedge fund Galleon Group and its founder Raj Rajaratnam, Reuters said today.

Twenty-three former hedge-fund managers, lawyers, traders and others have faced criminal or civil charges in that case, which prosecutors have called the largest hedge-fund insider-trading case ever. Fourteen have pleaded guilty to criminal charges, eight have pleaded not guilty, and one is at large.