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Charlie Breaks It

Level Global's Role in Trading Probe Not Yet Clear

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John Kinnucan says he knew something was wrong over at Level Global, one of a handful of hedge funds at the center of the government’s massive insider trading probe, when in August he received a curt email from the fund’s CFO Brian Murray.

“He basically told me they didn’t need me any more, and this was just a couple of days after the company’s founder was saying how well I was doing and how much they loved my work,” Kinnucan told the Fox Business Network on Thursday. Kinnucan runs an “expert” network company named Broadband Research. Level Global, along with hedge funds SAC Capital and Citadel Investments, were among his biggest clients.

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Prosecutors from the U.S. Attorney’s office from the Southern District of New York are investigating whether experts like Kinnucan, who analyzes trends among technology companies, may have stepped over the line and provided illegal insider information to large Wall Street traders and hedge funds. Kinnucan is under investigation as well, and has refused a request by the FBI to secretly record his clients with wiretaps.

Kinnucan has told FBN he believes he will be charged in the investigation—though he also said he doesn’t believe he passed on illegal insider tips. He was not one of the five people arrested Thursday morning in the ever-widening probe.

But one of those was an executive at another expert network, James Fleishman, a vice president at Primary Global, which does business with hedge funds like SAC Capital, Citadel and Level Global. Level was among a handful of outfits to be raided by the FBI back in November when investigators seized documents from the company. (SAC and Citadel received subpoenas for the information from the Justice Department.)

Meanwhile, FBN has learned through regulatory sources that Level’s involvement in the investigation may run deeper. They say an executive at Level may have worked as “mole” providing information to the FBI in its probe.

A spokesman for Level Global wouldn't deny if an executive with the fund is aiding in the probe. Last night, the fund released a letter to its investors stating that it is "not a target of the government's investigation and that we are cooperating fully." The letter didn't say if an individual at the fund is a focus of the probe.

Kinnucan says his “odd” experience with Level might provide some clues about the government's interest in the outfit. Last summer, he says, his research got him “mapped into their biggest positions,” meaning the information he provided Level Global on technology companies motivated many of the firm’s biggest investments.

He said that during this time he had regular conversations with the fund’s co founder Anthony Chiasson. “I even flew up to New York to meet him and some clients and he said how great I was doing.”

He was doing so well, Kinnucan says, that he was thinking he was about to get a raise, and everything Chaisson had told him about his work supported that belief. Then in August, Kinnucan said he billed the fund, and received an email from the CFO saying that Level was a “long term investors and my research is more data point driven and we don’t invest that way” and that the fund no longer needed his services.

“It was such a crock because they were investing that way all along,” Kinnucan said.

Kinnucan hadn’t thought much about Level until about a month later when as he put it a couple of “fresh faced eager beavers” from the FBI showed up on his door step and basically threatened to arrest him if he didn’t wear a wire and entrap one of his clients. Kinnucan refused, but recently the Feds have subpoenaed him for information on his business, information he began to turn over to the Justice Department and the Securities and Exchange Commission this week.

As for Level Global, the firm is attempting to stem the flow of massive redemptions of clients pulling their money from the fund. As FBN reported earlier Thursday, actual redemptions are still quite small, but requests for redemptions are growing, including one from a large college endowment.

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