Level Global Investors, a Connecticut-based hedge fund managing around US$4 billion, shut down in 2011 following a raid by the Federal Bureau of Investigation in November 2010 as part of a broader insider trading investigation. The raid, which targeted four hedge funds, created significant unease, leading to significant investor redemptions.
Co-founded by David Ganek and Anthony Chiasson in 2003, the fund announced it would liquidate by March 31, 2011, citing the investigation’s uncertainty as a threat to its fiduciary duties, despite not being formally charged. As the fund’s portfolio was very liquid, it was able to fully liquidate its positions over a period of around three months without adversely affecting market prices.
In 2012, the U.S. Securities and Exchange Commission (SEC) charged Level Global, Chiasson, and analyst Spyridon Adondakis with insider trading in Dell and Nvidia securities, alleging illegal profits from non-public information. The SEC alleged that market data provided by so-called expert networks contained insider information about companies. The firm settled with the SEC in 2013 for around US$21 million. The insider trading convictions of Chiasson and another manager were overturned in 2014, but the fund’s closure resulted in job losses and reputational damage for its employees.
Investors received the full net asset value of their investment, subject only to a holdback to cover any potential “disgorgement of profits” action against the fund if the insider trading allegations were proven. In the end, the allegations were not proven and the holdback was also fully distributed.
Sources:
Chasan, Emily (2011), “Raided Hedge Fund Level Global to Shut Down,” Reuters, February 12:
https://www.reuters.com/article/business/raided-hedge-fund-level-global-to-shut-down-idUSTRE71A4LX/
La Roche, Julia (2014), “Ex-Level Global Employee: We’ll Never Get Our Reputations Back,” Business Insider, December 11:
https://www.businessinsider.com/level-global-reputations-destroyed-2014-12
U.S. Securities and Exchange Commission (2013), “Level Global Agrees to Pay More Than $21.5 Million to Settle SEC Insider Trading Charges,” Press Release, SEC.gov, April 29:
https://www.sec.gov/newsroom/press-releases/2013-2013-76htm