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Monday, June 17, 2024 | Back issues
Courthouse News Service Courthouse News Service

Judge Refuses to Toss Hedge Fund Owner’s Case

MANHATTAN (CN) - Forced to defend his inside-trading prosecutions, U.S. Attorney Preet Bharara must confront "grave allegations" that he knew an FBI raid that destroyed a multibillion-dollar hedge fund rested upon fabricated evidence, a federal judge ruled Thursday.

Since his appointment in 2009, Bharara has staked his legacy largely on his aggressive approaches to fighting illegal Wall Street trading and political corruption in Albany.

Level Global Investors, a now-shuttered hedge fund that once had $4 billion in assets under management, became one of the high-profile targets of Bharara's securities-fraud investigations a little more than a year into his tenure.

In November 2010, the Wall Street Journal received advance notice of a raid on the hedge fund, and ran a front page story with photographs showing agents removing boxes from its offices.

The fund's founder, David Ganek, claims that the government got a search warrant for the raid by lying to a federal magistrate about statements by a Federal Bureau of Investigation agent and a cooperating witness, who disavowed those remarks in sworn testimony under a different case in 2012.

By then, the damage was already done, and Level Global collapsed four months after the raid.

Ganek, who was never charged with wrongdoing, sued more than a dozen FBI agents, prosecutors and their supervisors in a federal complaint for Fourth and Fifth Amendment violations filed early last year.

Bharara's office tried to swat away the lawsuit as untimely, arguing that the statute of limitations would have lapsed three years after the raid.

On Thursday, U.S. District Judge William Pauley III found that the clock actually started ticking once the FBI agent and cooperating witness testimony gave Ganek a viable case.

"Generally, plaintiffs should not face the 'Hobson's choice' of either prematurely bringing claims or forfeiting their legal rights," the judge wrote in a 35-page opinion.

Pauley approved discovery on most of Ganek's lawsuit to learn "whether this case is about a simple misunderstanding or whether something more troubling is afoot." The judge called Ganek's claims "grave allegations" in the introduction of his ruling.

Ganek's attorney Anna Benvenutti Hoffmann, a partner with the law firm Neufeld Scheck & Brustin, LLP, said in an email statement that she was "grateful" for the opportunity to press her client's case.

"We are confident that the facts will demonstrate that this was no misunderstanding but rather that it was something far more nefarious," Hoffmann said.

Bharara's office did not respond to a request for comment.

While prosecutors never charged Ganek with insider trading, a federal jury ultimately convicted his partner Anthony Chiasson of securities fraud.

In 2014, the Second Circuit freed Chiasson of a sentence of more than six years on the grounds of insufficient evidence, in an opinion that challenged Bharara's theory of insider trading.

The U.S. Supreme Court declined to review the reversal, and the Securities and Exchange Commission agreed to disgorge money from consent judgments against Level Global and other hedge funds.

A status conference in Ganek's case has been scheduled for March 30.

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