Diamondback Puts The Employee Involved In The Insider Trading Investigation On Leave

richard schimelOne of Diamondback’s founders, Richard Schimel

Photo: A Little Hope

Diamondback, one of the three hedge fund that was searched last week as part of the latest insider trading scandal, sent a letter to investors recently that explained in greater detail why the Feds raided it last Monday.A week ago, as a refresher, Diamondback, Loch Capital, and Level Global were raided, and a number of other hedge fund firms received subpoenas for information, and everyone assumed that the funds involved may have somehow profited off of insider information at some point, primarily because the raids were tied to insider trading allegations at FrontPoint and Galleon.

Last week, Diamondback and the other funds would only comment on the record to say that they had received requests for information from the FBI.

Now, the fund isn’t going on the record about it, but MarketWatch says that Diamondback sent a letter to investors recently to describe (diminish) their involvement in the investigation and pin it on one (unnamed) employee.

Based on the way MarketWatch describes the letter, it sounds like Diamondback is telling its investors, this isn’t that big of a deal, the fund is not closing.

The letter appears to be another attempt by Diamondback to discredit the investigation. Just last week, the NYPost reported that the fund had said they were the target of a “witch hunt.”

And tellingly, MarketWatch doesn’t say whether or not Diamondback addressed the real issue at hand – whether or not one of its employees traded on insider information.

All Diamondback appears to have said in the letter is that the Feds are not “targeting” Diamondback, they’re just investigating one former employee and one current employee, who has been put on leave.

From MarketWatch:

“The warrant appears to be focused on a single employee (a portfolio manager), as well as on a former employee who reported to that employee,” Diamondback wrote in the letter. “We have, as a matter of prudence, placed the current employee on a leave of absence,” it added.

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