Hedge fund Diamondback to pay $1 million to settle insider case

Posted: Updated:

BOSTON (Reuters) - Hedge fund Diamondback Capital Management, which had been embroiled in the government's insider trading case, has agreed to pay back roughly $1 million to settle an insider trading case, according to a court filing released on Wednesday.

The Stamford, Connecticut-based firm, which has not been accused of any wrongdoing, made the money after a former portfolio manager illegally traded on a tip that Axcan Pharma would be acquired.

Anthony Scolaro, the former manager, pleaded guilty last year to criminal charges of having used inside information that was misappropriated by two lawyers at Ropes & Gray LLP to trade on behalf of Diamondback.

Scolaro settled his civil case with the SEC and agreed to pay back roughly $200,000.

Diamondback, which has roughly $4 billion in assets, was named as a defendant in the SEC's case.

Last year federal agents raided Diamondback and three other hedge funds as part of the government's far reaching probe into how fund managers use so-called expert network firms to put them in touch with industry experts to give them an edge in making their trades.

The other funds, Level Global, Loch Capital Management and Barai Capital have shut down or are in the process of shutting down.

Two years ago Diamondback settled charges with the SEC that it violated a short-selling rule four times between August 2005 and October 2005.

(Reporting by Svea Herbst-Bayliss; Editing by Muralikumar Anantharaman)