Suit by hedge fund owner against U.S. officials can proceed

By Larry Neumeister
Associated Press

NEW YORK (AP) - A lawsuit brought by a hedge fund owner who claimed that an FBI raid violated his civil rights and forced him to close his business can proceed to determine whether evidence will support his "grave allegations," a judge said last Thursday.

U.S. District Judge William H. Pauley III freed lawyers to learn more to support David Ganek's claim that the November 2010 raid of the New York offices of Level Global Investors amid a federal crackdown on insider trading resulted from deliberate misrepresentations.

In a lawsuit seeking unspecified damages, Ganek claimed fabricated evidence led a magistrate to issue a warrant approving the raid, which along with the government's heavy-handed tactics led to the February 2011 closure of the Greenwich, Connecticut-based Level Global, which had over $4 billion in assets under management.

"These are grave allegations," Pauley wrote. He said letting lawyers assemble more evidence will help determine whether the government's actions resulted from "a simple misunderstanding or whether something more troubling was afoot."

A prosecutor's spokesman declined to comment last Thursday.

In a statement, Ganek called Pauley's ruling a "tremendous victory."

"This is the first step towards holding the government accountable despite the fact that conventional wisdom has been the government can't be held accountable for troubling conduct," he said.

Anna Benvenutti Hoffmann, a lawyer for Ganek, said: "We are confident that the facts will demonstrate that this was no misunderstanding but rather that it was something far more nefarious."

In his ruling, Pauley noted that the raids of Ganek's hedge fund and others "sent shockwaves through Wall Street" as investment bankers and traders were indicted and multibillion-dollar businesses were shuttered. The Securities and Exchange Commission also brought numerous civil cases.

"But five years later, a different picture has emerged," the judge wrote, recalling that a Manhattan federal appeals court has rejected the government theory used in some of the cases that resulted in more than 80 arrests.

"Criminal convictions were vacated, and indictments dismissed," Pauley said. "And in a nearly unprecedented role-reversal, the SEC agreed to disgorge monies it collected in connection with consent judgments against various hedge funds, including Level Global."

Published: Mon, Mar 14, 2016