Do Galleon’s tentacles reach to Chicago?

November 11, 2009

It appears Chicago-based Balyasny Asset Management may have been drawn into the Galleon insider trading scandal.

Hedge Fund Alert is reporting that a former Balyasny analyst is drawing scrutiny from securities regulators in connection with the fast-growing insider trading case that has led to the filing of either criminal or civil charges against 20 people. The $2 billion hedge fund reportedly notified some of its investors that the Securities and Exchange Commission has been investigating the unnamed analyst’s activities for several weeks.

Balyasny, according to Hedge Fund Alert, recently invited the SEC in to review its books and records. The hedge fund has told its investors that the SEC review is focused on the former analyst and not the firm itself. The former analyst worked in Balyasny’s New York office.

Barry Colvin, Balyasny’s vice chairman, wouldn’t say when the analyst left the hedge, nor would he discuss how the fund became aware that regulators were reviewing the analyst’s activities. 

“We did employ an outside investigative firm to review this issue and based on what we found so far, we have found no improprieties at BAM,” says Colvin, who added the fund hired the investigative firm during the summer.

That, of course, is several months before federal authorities made their big splash with the Oct. 16 arrest of Galleon co-founder Raj Rajaratnam.

The news about Balyasny could explain the reference to an unnamed Chicago hedge fund in the criminal complaint filed by federal prosecutors against former S2 Capital hedge fund manager Steven Fortuna. In the complaint, prosecutors charged Fortuna got top secrete insight about “an information technology company headquartered in Massachusetts” from an analyst with a with a Chicago-based hedge fund.

Fortuna is one of five defendants in the Galleon case who has pleaded guilty and is cooperating with investigators. In pleading guilty on Oct. 20, Fortuna admitted to getting inside information from the analyst sometime from July 2008 to March 2009 and using it to make trades for the benefit of S2, according to a copy of a transcript of the proceeding.

The criminal complaint suggests the still unidentified hedge fund analyst was tipped about the alleged inside information by an employee of the Massachusetts tech company. The analyst passed on the information to Fortuna “because they were friends” and because Fortuna reciprocated by providing the analyst with “information and trading advice regarding certain technology companies.”

This is the same kind of ‘you scratch my back, I’ll scratch your back’ horsetrading of inside corporate intelligence that makes up much of the allegations in this sweeping insider trading case.

An attorney for Fortuna declined to comment. Colvin also declined to comment on Fortuna’s guilty plea and the criminal complaint.

All of this is just one small piece of a large puzzle of interconnected players–many of whom have yet to be charged and may even still be unknown to prosecutors. But it’s just one more example why it make take weeks and months for authorities to complete this complex maze.

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