Hedge fund Diamondback to shutter after clients pulled more cash

BOSTON, Dec 6 (Reuters) - Hedge fund Diamondback Capital, which became embroiled in the U.S. government's insider trading case, has told its clients that it plans to shut down after clients asked to pull out yet more money.

Richard Schimel and Larry Sapanski, two of the fund's founders, wrote to investors on Thursday to break the news that the firm has started to sell off assets, move into cash and prepare to return the bulk of client money in January.

"It is with deep regret that we inform you that Diamondback Capital Management LLC has made the difficult decision to recommend the commencement of an orderly wind down and termination of the funds under its management," the pair wrote in a letter, obtained by Reuters.

Diamondback now becomes the latest casualty in the government's growing insider trading investigation, shutting down roughly two years after FBI agents raided the firm. A former Diamondback portfolio manager, Todd Newman, is currently being tried on charges of insider trading.

Diamondback itself had never been accused of any wrongdoing. Nonetheless clients had becoming increasingly nervous about the firm's ability to survive and asked for some $520 million back at the end of the year, cutting the firm's total assets to $1.45 billion.

(Reporting By Svea Herbst-Bayliss; Editing by Gerald E. McCormick)