Hedge fund manager David Ganek scored a 'tremendous victory' in his suit against the US government
Ganek, the founder of now-defunct hedge fund Level Global, filed a lawsuit in February 2015 against the FBI and Southern District prosecutors in New York after the government's 2010 "reckless" raid resulted in the shutting down of his once $4 billion firm.
The defendants, which include a number of FBI agents and US Attorney Preet Bharara, filed a motion to dismiss the suit.
In an order and memorandum dated March 10, Judge William H. Pauley III wrote that the defendants' motion to dismiss is granted in part and denied in part.
Pauley sided with the defendants over the legality of tipping off The Wall Street Journal about the raid. Pauley also sided with the defendants over choosing a raid rather than asking for information via subpoena.
All other aspects of Ganek's Fourth and Fifth Amendment claims survive, the judge wrote.
At the heart of the case is whether the government fabricated evidence against Ganek to justify the search warrant and raid his office, and the seizure of his electronics.
Here is the relevant excerpt from Pauley's memo:
In this lawsuit, Ganek seeks to hold government agents accountable for violating his civil rights. More specficially, Ganek alleges that the affidavit supporting the Government's request for a search warrant of Level Global and his office contained deliberate misrepresentatons that were later exposed by sworn trial testimony of an FBI agent and a government informant. According to Ganek, the fabricated evidence led a magistrate to issue the warrant. That, coupled with the Defendants' heavy-handed tactics, precipitated the closure of Level Global. These are grave allegations.
In the memo's conclusion, Pauley wrote: "Discovery is now appropriate to ascertain whether this case is about a simple misunderstanding or whether something more troubling was afoot," Pauley concluded.
The judge has set a March 30 conference for both parties.
In a statement, Ganek called Thursday's decision a "tremendous victory."
He said:
This is a tremendous victory for the rule of law and brings us one step closer to sorely needed deterrence for preventing the government from engaging in this kind of misconduct without any concern about the consequences. 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.
Level Global's fall
On Monday, November 22, 2010, the FBI raided hedge fund Level Global's midtown Manhattan offices.
The once-$4 billion hedge fund became the first casualty of the government's massive insider trading crackdown. On February 11, 2011, Level Global sent a letter to investors informing that it would be returning capital to investors and closing its doors. The 65 employees of the fund lost their jobs.
Fourteen months after the raid, the fund's cofounder Anthony Chiasson was arrested and charged of trading on insider information in Dell and Nvidia stocks. Chiasson was a codefendant with Todd Newman, a former Diamondback portfolio manager.
Ganek was never charged with any wrongdoing.
Chiasson and Newman were convicted in May 2013. At that time, Level Global agreed to pay the Securities and Exchange Commission $20.5 million to settle insider trading charges.
In December 2014, the United States Court of Appeals for the Second Circuit, which covers New York City, tossed the insider-trading convictions for the two hedge fund managers.
Solicitor General Donald Verrilli filed petition in July asking the Supreme Court to review the appelate court's decision. That petition was rejected, exonerating Chiasson and Newman and marking the final chapter in the years-long case.
By October, Bharara had dismissed charges against former SAC Capital trader Michael Steinberg and six others who pled guilty to insider trading in the Chiasson/Newman case.
The SEC refunded Level Global for the fine they paid.
Here's the memo from Judge William Pauley:
Memo & Order from Judge William Pauley