November 23rd, 2010

The FBI raided three hedge funds, in yet another financial market scandal.  The offices of Diamondback Capital Management, Loch Capital Management, and Level Global Investors LP were raided in the investigation of an insider trading scandal.  The raids are part of an ongoing investigation of financial scandals, in which consultants sold “expert networks” to investment entities.

These “expert networks” would include consultants who took cash to find out what was going on inside investment firms, and then relayed that information to investors to get a jump start on the market.

According to CNBC, Goldman shares dipped 3% amid insider trading fears – “The Justice Department is examining whether employees of the New York-based investment bank leaked information about deals to select clients, the Wall Street Journal reported on Saturday.”

The reach of this case could be throughout the entire industry.  Earlier this year, Goldman had to pay a $550 million fine to the SEC for the Abacus case – but considering the amount of money made on that deal the fine was relatively small, and there were no charges filed.  The current DOJ investigation could actually involve profits less than that of Abacus, but the far reaching nature of the allegations could bring this into a full circle criminal investigation.

Needless to say, many financial professionals, investors, and regulators have grown very interested on what will happen after the evidence found in the raids is compiled. We will keep you informed.