NEW YORK, March 10 (Reuters) - A U.S. judge cleared the way on Thursday for former hedge fund manager David Ganek to sue government officials, including Manhattan U.S. Attorney Preet Bharara, for improperly raiding his offices as part of a wide-ranging insider trading crackdown.
U.S. District Judge William Pauley in Manhattan rejected the government’s bid to dismiss a lawsuit by the former head of Level Global Investors, who said “fabricated” evidence was used to justify the November 2010 raid.
The crackdown on insider trading led to dozens of convictions and guilty pleas, and caused various businesses including Level Global, a $4 billion hedge fund, to shutter.
While dismissing some claims, Pauley said Ganek may pursue allegations that prosecutors and Federal Bureau of Investigation agents violated his constitutional rights by allowing the raid.
The judge called some of the allegations “grave,” and said Ganek could take depositions and obtain evidence “to ascertain whether this case is about a simple misunderstanding or whether something more troubling is afoot.”
Ganek in a statement called the ruling “the first step towards holding the government accountable” for what he called “troubling conduct.”
A spokesman for Bharara declined to comment.
Ganek was never criminally charged.
His partner Anthony Chiasson was convicted in 2012, alongside former Diamondback Capital Management portfolio manager Todd Newman, for trading on inside information about Dell Inc and Nvidia Corp.
Those convictions were overturned in December 2014 when the 2nd U.S. Circuit Court of Appeals in New York narrowed the definition of what constitutes insider trading.
In January, the U.S. Securities and Exchange Commission took the rare step of refunding Level Global the $21.5 million it paid in a related civil settlement.
Ganek’s lawsuit over the raid was filed in February 2015 and focused on a search warrant that he said contained deliberate misrepresentations.
The warrant said former Level Global analyst Spyridon Adondakis told FBI investigators he passed illegal tips to Ganek, Chiasson and an unnamed individual, who then traded on that information.
But the lawsuit said Adondakis later testified at Chiasson’s trial that he never told Ganek about the source of any inside information.
The case is Ganek v. Leibowitz et al, U.S. District Court, Southern District of New York, No. 15-01446. (Reporting by Nate Raymond in New York; Editing by Tom Brown)