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Sunday, June 23, 2024 | Back issues
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Feds Duck Challenge Over Hedge Fund’s Collapse

The Second Circuit booted a lawsuit Tuesday by the owner of a Wall Street hedge fund whose billion-dollar business was bankrupted by a government crackdown on insider trading.

MANHATTAN (CN) — Preserving the legacy of former Manhattan U.S. Attorney Preet Bharara, the Second Circuit snuffed a lawsuit Tuesday over his botched raid of the Wall Street hedge fund Level Global during an insider-trading crackdown.

Bharara had been one year deep into his tenure when the Wall Street Journal got wind of his plans to conduct a 2010 raid on Level Global’s downtown offices. Unable to weather the tide of negative publicity, Level Global founder David Ganek to closed the multibillion-dollar fund’s doors and launched a crusade of his own to hold the ex-prosecutor liable for his losses.

U.S. District Judge William Pauley III pushed the case along last year, highlighting the “grave allegations” that Bharara’s prosecutors lied to a federal magistrate to secure a warrant.

Bharara is no longer in office, along with every other Obama-appointed U.S. attorney, but his successor, Acting U.S. Attorney Joon Kim, found vindication Tuesday from the Second Circuit.

The Manhattan-based federal appeals court found it reasonable for federal prosecutors to have wanted to search Ganek’s office, even though they never charged him with wrongdoing.

“While evidence that Ganek knowingly traded on inside information would enhance probable cause to search his office, the absence of such mens rea evidence would not preclude probable cause for such a search,” U.S. Circuit Judge Reena Raggi wrote for a three-judge panel, using the Latin phrase for “guilty mind.”

Raggi noted that an alternate finding would hamstring prosecutors handling more pressing investigations.

“One has only to imagine a scenario where the government seeks to search the residence of a person who left a box on a subway car that exploded and killed numerous persons,” the 37-page opinion states. “The person may have known the contents of the box when he acted, or he may have been an unwitting dupe. No matter. Whatever his mens rea, his involvement in the actus reus of a crime would sufficiently establish probable cause to search his residence for criminal evidence pertaining to the bombing.”

Ganek said he has not abandoned his quest against the dozens of agents, prosecutors and their supervisors that his lawsuit targeted.

“This is a dangerous day for private citizens and a great day for ambitious, attention-seeking prosecutors who are now being rewarded with total immunity even when they lie and leak,” he said in a statement. “The good news is this ruling does not preclude the Department of Justice from bringing disciplinary charges."

The Justice Department is now led by Attorney General Jeff Sessions, whose boss Trump was accused by Bharara of inappropriately attempting to interfere with his office.

The Second Circuit meanwhile pushed back against Ganek’s attempt to cast himself as a victim.

“In any event, this is not a case in which there was no evidence of Ganek’s involvement in insider trading,” the ruling states. “To the contrary, the actus reus elements of the crime are plainly asserted in the corrected affidavit: (1) Ganek had received inside information from Adondakis, and (2) he had traded on it. Only his mens rea was questionable.”

The U.S. Attorney’s office declined to comment.

Categories / Appeals, Civil Rights, Securities

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