A Manhattan federal judge on Thursday green lighted a lawsuit by a hedge fund operator alleging that Manhattan U.S. Attorney Preet Bharara should be held liable for a misleading affidavit used in an insider trading probe that killed the fund.
U.S. District Judge William Pauley said David Ganek of Level Global Investors, once a $4 billion fund, should at least get to gather evidence to try to prove Bharara, his deputies and FBI agents and supervisors acted irresponsibly and violated his constitutional rights.
“Discovery is now appropriate to ascertain whether this case is about a simple misunderstanding or whether something more troubling was afoot,” the judge wrote in his 35-page decision denying a motion to dismiss by Bharara and other defendants.
The lawsuit focuses on a 2010 raid on the hedge fund and search of Ganek’s office and computer based on information about insider trading in Dell Computer stock from a firm analyst, which supervisors in Bharara’s office tipped off The Wall Street Journal about.
The informant told agents that Ganek did not know information about Dell had come from insiders at the company, but an affidavit submitted to a magistrate to get a search warrant said the opposite, according to the lawsuit.
Lawyers for Ganek later met with Bharara and told him the firm would collapse if he didn’t publicly acknowledge that Ganek was not a target, and Bharara refused, according to the lawsuit. The firm did collapse in 2011, and Ganek was never charged.
Pauley called the allegations “grave.” A spokesman for Bharara declined to comment. Ganek’s lawyer said she was pleased at the opportunity to gather evidence and take depositions to find out what actually happened.
“We are confident that the facts will demonstrate that this was no misunderstanding but rather that it was something far more nefarious,” said the lawyer, Anna Benvenutti Hoffmann.
The raid on Level Global was part of a massive crackdown on insider trading before a string of public corruption cases that have made Bharara a prosecutorial star in New York.
Ganek’s partner, Anthony Chiasson, was convicted of insider trading in 2012. But his conviction was overturned in 2014 when a federal appeals court rejected the government’s theory of what constituted insider trading, reversing several cases.
The Securities and Exchange Commission refunded a $21.5 million civil settlement.
— With wire services.