Federal investigators raided the offices of Diamondback Capital Management and Level Global Investors today in relation to what FBI spokesman Richerd Kolko described as “an ongoing investigation.” Both firms are headed by former employees of Steven Cohen’s SAC Capital.
Investors will be watching closely for results of the investigation and news of what occurred inside the funds to trigger such a reaction. With the high profile liquidation of Raj Rajaratnam’s Galleon Group still fresh in Wall Street’s memory, investor confidence is sure to test new lows.
Diamondback listed their top 15 US listed equity holdings at the end of the third quarter, and they included other major financials Citigroup (NYSE: C) and JPMorgan Chase & Co. (NYSE: JPM). Level Global’s top 15 US listed equity holdings were dominated by Virgin Media (NASD: VMED), Chinese dotcom SINA (NASD: SINA), and agricultural firm Monsanto Company (NYSE: MON).
Both Diamondback and Level Global are relatively new in the field, but pose a risk to the financial system nonetheless. Although their deposits do not rival the major hedge funds, a souring of investors tastes for investors could occur because of these actions and prolong the period of slow growth we are already seeing.
