12/08/2010

After Raid, Loch to Lay Off Most of Its Staff

Loch Capital appears to be throwing in the towel.

Two weeks after its offices were raided by federal officials pursuing a broad insider-trading case, the Boston firm told most of its staff that their last day of work would be Dec. 31, according to a person who's been briefed on the matter. The firm, founded in 2002 by brothers Timothy McSweeney and Todd McSweeney, has a staff of 14.

A Loch spokesman, Mark O'Toole, declined to say whether layoffs are in the works, but he denied that the McSweeneys are preparing to shut down the business. "No decision has been made to close Loch Capital Management," O'Toole said this week.

Loch has been under siege since the beginning of the year, when investors lined up to withdraw amid reports that the McSweeneys were linked to a hedge fund manager who is a key witness in the Galleon Group case. That manager, S2 Capital co-founder Steven Fortuna, pleaded guilty to insider-trading charges in November 2009. That month, federal prosecutors charged Galleon chief Raj Rajaratnam with insider trading in the largest such case ever brought against a hedge fund manager.

Loch, which according to some reports managed as much as $2 billion at its peak, has recently seen assets under management slide to around $200 million.

The situation went from bad to worse when the FBI raided Loch's offices on Nov. 22. That same day, agents also raided Diamondback Capital's offices in Stamford, Conn., and New York-based Level Global.

All three firms have said they've been advised by federal authorities that they aren't targets of the probe. Neither Loch nor any of its employees have been accused of any wrongdoing.

Still, with rumors swirling about the insider-trading case possibly ensnaring any number of hedge fund managers, investors' attitude seems to be "redeem now, ask questions later."

Loch's specialty is trading technology stocks. Before starting the firm in 2002, Timothy McSweeney was a technology-fund manager at Essex Investment of Boston. Todd McSweeney previously worked as an analyst at investment firm Baring Asset Management of Boston.

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