Diamondback Capital Management to Close Down

Hedge Fund Diamondback Capital Management to close down after investors asked to withdraw $520 million in capital.

By Michael de la Merced to Dealbook

Diamondback Capital Management, one of several hedge funds to be ensnared in the government’s insider-trading investigations, will close down after investors asked to withdraw $520 million in capital, the firm wrote in a letter to investors on Thursday.
The money that investors are seeking to pull out of the fund by year-end amounts to about 26 percent of its assets, Diamondback wrote in the letter, which was reviewed by DealBook. It would leave the firm with $1.45 billion.

“Rather than continue to manage investor capital while undertaking to restructure the firm to manage this reduced level of assets, we have decided that the most prudent course is to wind down and terminate the funds and return investor capital,” said the letter, which was signed by Diamondback founders Richard Schimel and Larry Sapanski.
Diamondback resolved its role in an insider-trading investigation in January, paying more than $9 million in fines and penalties as part of a nonprosecution agreement with the United States attorney’s office in Manhattan.

The firm became embroiled in the investigation when two of its former employees, Todd Newman and Jesse Tortora, were charged with participating in an insider-trading ring that prosecutors said earned about $62 million in illegal profits trading in technology companies. Agents from the Federal Bureau of Investigation raided Diamondback’s offices in the fall of 2010 as part of their investigation.

Mr. Tortora pleaded guilty and cooperated with the government. He is a key witness in the trial of Mr. Newman, which is now in its third week in Federal District Court in Manhattan.

Other hedge funds that were raided at the same time, including Level Global Investors and Loch Capital Management, have already closed down. Anthony Chiasson, a co-founder of Level Global, is on trial alongside Mr. Newman.

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