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Inside hedge fund manager David Ganek's uphill fight against the US government

David Ganek is a man on a mission, a hedge funder who believes he was wronged by an overzealous prosecutor who raided his offices in 2010 and charged the co-founder of his firm with insider trading. The charges were reversed in 2014, but in Ganek's mind the harm was irreversible. Since then, he's been on a quest for redemption. An in-depth profile from Institutional Investor explains Ganek's motivation and details his long odyssey. This is an excerpt; the complete post can be found here.

The news spread like wildfire across trading floors in New York, Boston and Connecticut: The Federal Bureau of Investigation had raided four hedge fund firms looking for evidence associated with suspected insider trading.

The date was November 22, 2010; the firms in question were Barai Capital Management, Diamondback Capital Management, Level Global Investors and Loch Capital Management. Within months all four had closed, after experiencing significant redemptions from investors as a result of the raids, while the U.S. attorney for the Southern District of New York, Preet Bharara, proceeded with his insider trading investigation across the hedge fund industry. In 2012, Bharara filed charges against 12 individuals from the four targeted firms. But one man was never charged: David Ganek.

While the founder and principal of New York-based Level Global was named in the affidavit submitted to a judge by the FBI in support of the 2010 search warrant, neither he nor his firm — which had $4 billion in assets and was worth approximately $400 million at the time it was raised — were ever charged with a crime. Now Ganek is pushing back.

David Ganek speaking at Delivering Alpha in New York on Sept. 13, 2016.
David A. Grogan | CNBC
David Ganek speaking at Delivering Alpha in New York on Sept. 13, 2016.

Ganek is seeking to clear his name. Addressing a crowd of nearly 400 investors and other financial professionals at this week's Delivering Alpha conference, co-sponsored by Institutional Investor and CNBC, the fund manager told Andrew Ross Sorkin that he had not originally planned to sue the government: "It's funny, because out of 100 people I may have asked about should I sue the government, I got 100 'Are you crazy?' [responses]." But, Ganek explained, as he talked through his situation with noted civil rights attorney Barry Scheck — co-founder of the Innocence Project, while works to free people incarcerated for crime they did not commit — and his staff, it became increasingly clear to the Level Global founder that he had a case.

A review by Institutional Investor of Ganek's legal case, as well as of a separate insider trading investigation involving Level Global, lays open the inner day-to-day workings at his hedge fund. The two cases show how, despite seemingly strict compliance controls, some individuals at the firm became party to information on securities from company insiders.

In February 2015, four years after he shut down his firm, Ganek filed a complaint in the U.S. Southern District Court of New York against Bharara, members of the FBI and the U.S. Attorney's Securities and Commodities Fraud Task Force involved in the November 2010 raid and related investigation. The complaint accuses Bharara and other defendants of violating Ganke's constitutional right not to be deprived of property or reputation. The case claims that Ganek should not have been included in the search warrant because the affidavit in support of the warrant contained "false statements" — that Ganek had knowledge of the alleged insider trading taking place at Level Global — and the defendants either knew or should have known that the information was false. The subsequent failure on the part of Bharara's office to make clear that Ganek was not a target of the investigation further compounded the problem, causing a rush of investor redemptions that left the hedge fund manager with no choice but to close his business. Ganek has requested a jury trial.