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Tuesday, May 21, 2024 | Back issues
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Hedge Fund Founder Sues U.S. Attorney Over Raid

MANHATTAN (CN) - Level Global hedge fund had billions in assets under management before an FBI raid based on fabricated evidence five years ago forced the company to go belly up, its founder claims in a federal lawsuit.

"This is a case about the government fabricating evidence and, as a result, destroying a business," the David Ganek's 46-page complaint begins.

Suing more than a dozen prosecutors and agents, including U.S. Attorney Preet Bharara, Ganek says that the FBI and federal prosecutors knew that the high-profile raid on his office on November 2010 would put his business at "catastrophic risk."

The investigators had no probable cause to believe that he engaged in wrongdoing, he says.

"Specifically, a number of FBI agents and individual AUSAs met with a witness who told them he did not have knowledge that Mr. Ganek had been involved in insider trading; the investigators then falsely represented that the witness had said just the opposite - that he did have such knowledge," the complaint states. "This fabrication was the basis for the raid on Mr. Ganek's office."

Ganek claims that the "wrongful search was also widely and recklessly publicized."

"Due to a tip to the Wall Street Journal, the raid was front page news," the complaint states. "Coverage included photographs of agents carrying boxes of files from the Level Global offices. Because of the raid, Mr. Ganek faced the foreseeable consequence that his investors -themselves highly sophisticated financial professionals - would withdraw their investments from his fund, which would cause it to fold."

While Ganek was never charged with insider trading, his partner Anthony Chiasson was indicted and ultimately convicted of security fraud.

The 2nd Circuit reversed the jury's verdict against Chiasson, finding insufficient evidence against him in a opinion late last year. The decision freed Chiasson from a six-and-a-half year sentence, and raised prosecutors' burden of proof to score an insider trading conviction.

Ganek claims he tried to repair his fund's reputation following the raid by commissioning "multi-million dollar" external reviews conducted by "highly-respected, top-tier law firms" that cleared him of wrongdoing.

The New York Times succeeded in unsealing the warrant authorizing the raid, and published it on the day Garek filed his lawsuit.

The warrant stated that a confidential informant claimed he passed inside tips to Garek and other Level Global executives.

But Garek's lawsuit asserts that the informant testified he never said that at subsequent criminal trial in late 2012.

At that trial, "both the cooperator and one of the FBI agents present at that initial meeting made clear that the cooperator had never made the statement attributed to him in support of the warrant," the complaint states.

"In other words, both the cooperator and one of the FBI Defendants made clear, under oath, that the sole basis given for naming Mr. Ganek as a target of the raid-the same raid that Mr. Bharara had allegedly investigated and stood by-was completely false," it continues.

Ganek alleges four counts including failure to intercede, supervisory liability and violations of his Fifth Amendment due-process rights and Fourth Amendment search-and-seizure protections.

The lawsuit does not specify damages except to say the fund was valued at $400 million before the raid.

Ganek is represented by Nick Brustin of Neufeld Scheck & Brustin of Manhattan.

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