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November 23, 2010 1:11 PM

Hedge Funds Lawyering Up

Posted by Drew Combs

When news accounts over the weekend leaked information about the government's investigation into insider trading in the financial services industry, some on Wall Street were surprised. But the shock has quickly morphed into a defensive mode. According to The Am Law Litigation Daily, hedge funds, even those that haven't been publicly linked to the investigation, have lawyered up. One lawyer told the Lit Daily that he was retained by two funds this weekend that have not been identified as targets of the investigation. "It is making people really nervous in the hedge fund community," he said.

Other white-collar lawyers interviewed said they fielded telephone calls and e-mail messages over the weekend as a result of the investigation. Of course, for some hedge funds, hiring a lawyer isn't just a precautionary measure.

On Monday, agents with the Federal Bureau of Investigation raided the offices of three hedge funds in connection with the sweeping probe: Level Global Investors LP, Loch Capital Management, and Diamondback Capital Management.

The full extent of the government investigation into the three hedge funds or the extent to which it is related to other recent insider trading investigations isn't completely clear. The Wall Street Journal has reported that the investigation could encompass consultants, investment banks, hedge funds, mutual funds traders, and analysts.

What is clear is that the government's more aggressive posture with Wall Street is resulting in lots of billable hours for the white-collar bar.

David Zornow at Skadden, Arps, Slate Meagher & Flom is defending the French medical researcher accused of leaking information about a clinical trial of a Hepatitis C treatment to hedge funds. James Benjamin, Jr., of Akin Gump Strauss Hauer & Feld is representing Chip Skowron, a former portfolio manager at Front Point partners who has been placed on leave in connection with the case.

Former Jeffries Group hedge fund manager Joseph Contorinis, who was convicted of insider trading in October, was defended by lawyers from Paul, Weiss, Rifkind, Wharton & Garrison. A onetime S.A.C. Capital analyst linked to Contorinis, Jonathan Hollander, is represented by Aitan Goelman of Zuckerman Spaeder.

Two of the hedge funds raided on Monday (Level Global and Diamondback) are run by former managers at S.A.C., which according to some reports is also in the government's crosshairs. Martin Klotz of Willkie Farr & Gallagher is regular outside counsel to S.A.C. A call placed by the Lit Daily to Klotz was returned by an S.A.C. spokesman who said, "Last I checked, S.A.C. has't been accused of anything."

The Journal described Wilmer's Leonard Pierce as a lawyer for Loch Capital, one of the funds raided on Monday. The publication said he declined to comment.

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