The SEC may have to return millions to a hedge fund it helped shut down

REUTERS/ Lucas Jackson

An appellate court blow to Preet Bharara may next be felt at the SEC.

A hedge fund that paid the Securities and Exchange Commission a fine to avoid prosecution over insider trading charges may try and reclaim those funds after the conviction of its co-founder was overturned.

The SEC had fined Level Global $21.5 million over insider trading allegations relating to Dell and Nvidia. Another fund, Diamondback Capital, was also caught up in the allegations and paid $9 million to keep the SEC from pursuing charges.

Level Global co-founder Anthony Chiasson and Diamondback portfolio manager Todd Newman were given prison sentences in 2012.

Then, late last year, the United States Court of Appeals for the Second Circuit, which covers New York City, overturned their convictions, and earlier this month the US Supreme Court refused to review the case

"In light of established law, Level Global is actively considering all of its options," a lawyer representing the fund, which has since shut its doors, said.

Larry Sapanski, who was one of the founders of Diamondback, declined to comment when reached by Business Insider.

While several attorneys who spoke with Business Insider said the groundwork has been laid for a potential challenge to some of the SEC's plea deals, not all were sympathetic to the idea.

One highlighted the difference between taking a plea and accepting a settlement and a fine. Level Global neither admitted nor denied the SEC's charges at the time and being convicted.

"You buy peace in a plea deal," one said. "Why should you be allowed to go back and change an agreement that you made to avoid prosecution?"

The SEC declined to comment when contacted by Business Insider.