On Friday, Judges Reena Raggi, Denny Chin and Susan Carney presided over arguments in federal appeals court pertaining to a 2015 lawsuit filed by David Ganek, founder of Level Global hedge fund, against the Justice Department and the FBI. Mr. Ganek alleges that the defendants - including former U.S. Attorney Preet Bharara and his former top deputy Richard Zabel - had ‘fabricated evidence’ to obtain a search warrant of his hedge fund’s office in 2010. The Justice Department denies those charges and seeks to have the case dismissed.

While the target of the government’s investigation in 2010 was Anthony Chiasson, a Level Global co-founder, the search warrant was worded to include Ganek’s name and all of Level Global. Ganek contends that the search warrant was inappropriately broad in its scope and a violation of his civil rights. The government contends that Ganek might have known about illegal trading at his fund, and, therefore, it was appropriate for the government to have broad leeway in its investigation.

The November 2010 ‘raid’ of Level Global’s office led to negative publicity about fund manager David Ganek and the hedge fund – the manager and Level Global were effectively implicated as targets of Preet Bharara’s insider trading probe. The initial damage was done, and within 4 months of the raid, Level Global was forced to close under the weight of a flood of redemptions from fund investors. Ultimately, Ganek was never charged, and Chiasson’s conviction for insider trading was later overturned. 

In its brief account of the appeals hearing, the NYPost referred to two quotes:

“What the government is saying is that if a guy in the mail room in trading on inside information, you have the right to search the entire organization.” - -  Former Federal Judge Nancy Gertner, lawyer for Ganek.

 

“If the stolen item is in an unwitting participant’s home, you get to search and seize the item.”  - -  Federal Appeals Judge Reena Raggi..

FINANCIALISH ASKS, ‘WHAT ABOUT CONTEXT’?  While we don't know or fully understand the facts and the legal issues associated with the case, one thing seems clear: the government conducted its raid of Level Global in a manner that enabled, if not encouraged, the public to suspect that David Ganek and Level Global were targets of an insider trading investigation.

In some ways, the handling of the raid parallels James Comey’s announcement days before the 11/9 presidential election that the FBI needed to investigate supposed late-breaking information concerning Hillary Clinton’s email server. The implications were ominous for Clinton - the FBI certainly possessed some damning, incriminating information, otherwise it would not have made the announcement. The announcement prompted many voters to switch allegiances to Donald Trump - a scenario many political pundits believe was the ‘proverbial straw’ that broke Clinton’s back and swung the election to Trump.

So, we return to the issue of context. If Anthony Chiasson was the government’s one true target, then Financialish believes the Justice Department and the FBI were guilty of violating the civil rights of David Ganek and Level Global. It’s not justification enough to say that the feds needed to implicate Ganek and Level Global in order to obtain a widespread search warrant. And once they had obtained the warrant permitting them to serach all of Level Global, the feds were wrong not to dispel the rampant accusations and innuendos against Ganek and Level Global – i.e., it would have been appropriate to publicly announce that their investigation pertained at the time to Chiasson, alone. Or, they could or should have said that the investigation was not directed at Ganek and Level Global.

However, if the government had specific bases or evidence for believing that others in Level Global shared guilt in the alleged insider trading violations, then the widespread search of Level Global would have been justified.

In this age of “SPIN,” it is often difficult to distinguish news or facts from ‘alt news’ or lies. It will be interesting to see if the Court of Appeals in Manhattan is able to tell the difference.