The following story appeared in the New York Times on December 6, 2012:
Diamondback Capital Management, one of several hedge funds 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. 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 the Diamondback co-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 agreements with the United States attorney’s office in Manhattan and the Securities and Exchange Commission.
Unusually, the firm’s accord with the S.E.C. did not include language that the fund “neither admits nor denies” any wrongdoing in the case.
Diamondback 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, including by agreeing to record conversations with friends in the investing community. He is a crucial witness in the trial of Mr. Newman, which is now in its third week in Federal District Court in Manhattan.
Another former executive at Diamondback, Anthony Scolaro, pleaded guilty to insider trading in late 2010 and cooperated with the government.
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.
In court last month, Mr. Tortora testified that Mr. Newman helped facilitate $175,000 in “consulting payments” to the wife of Sandeep Goyal, a technology analyst, in exchange for secret financial information about the computer maker Dell.
Lawyers for Mr. Newman have sought to depict their client’s former colleague as a disgruntled employee.
The firm has said that an internal inquiry by outside counsel found no evidence of improper trading by any employees other than Mr. Newman and Mr. Tortora.
Diamondback was one of several firms that over the last decade have spun out of SAC Capital Advisors, the hedge fund giant owned by the billionaire investor Steven A. Cohen. SAC has also become ensnared in the government’s inquiry; several of its former employees are facing insider trading charges.
Mr. Schimel and Mr. Sapanski both worked at SAC before starting Diamondback along with a third SAC alumnus, Chad Loweth. There is also a familial connection between the two firms: Mr. Schimel is married to Mr. Cohen’s sister.
A spokesman for SAC said in a statement: “Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry.”
At its peak, in 2010, Diamondback had about $6 billion under management. The firm posted a strong performance, averaging about 9 percent annualized since its start in 2005, more than 11 percent over the performance of the Standard & Poor’s 500-stock index during the same period.
Through the end of November, the firm, which has 133 employees, was up about 7 percent for the year. Its biggest holdings as of Sept. 30 included Yahoo, Capital One Financial and the American International Group.
“We are grateful to have had the privilege of managing your money and developing a seven-year track record of which we can be proud,” the letter said. “We especially appreciate your patience and support during the last two difficult years, during which we reached closure of the government’s investigation.”