8:10 p.m. | Updated
An ex-portfolio manager at Diamondback Capital Management pleaded guilty to insider trading late last year and was cooperating with the government in its widespread crackdown on insider trading at hedge funds, according to documents unsealed by the Justice Department on Wednesday.
Prosecutors said the manager, Anthony Scolaro, made thousands of dollars by trading on a tip passed to him about the 2007 takeover of Axcan Pharma by TPG Capital. The case is related to an earlier government investigation of the Galleon Group hedge fund, whose co-founder, Raj Rajaratnam, was convicted of insider trading this month.
The plea was released at a difficult time for Diamondback, which along with two other prominent hedge funds was raided by federal authorities in November as part of a widening investigation. A source familiar with Diamondback says the firm does not believe the raid and Mr. Scolaro’s guilty plea are connected.
The raids delivered a blow to Diamondback, which lost about $1.3 billion in redemptions or roughly 20 percent in assets, through March of this year, as skittish investors withdrew their money from the firm. While Diamondback has so far survived, the other raided firms, Level Global Investors and Loch Capital Management, shut down in the aftermath.
None of the raided hedge funds have been charged with any wrongdoing. A representative for Diamondback declined to comment. Mr. Scolaro’s lawyer did not respond to requests for comment.
Prosecutors said Mr. Scolaro received his tip from Franz Tudor, a former trader at the broker dealer Schottenfeld Group, who had also pleaded guilty. Of the 27 people charged in relation to the Galleon case, Mr. Scolaro is the 23rd to plead guilty.
Among those still fighting the charges is Zvi Goffer, another former Schottenfeld trader and the founder of the hedge fund Incremental Capital. Mr. Goffer is currently on trial in Lower Manhattan, accused of making the same trade as Mr. Scolaro.
Article source: http://feeds.nytimes.com/click.phdo?i=9672cf63138a3fd192efc14cb7d670ca
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