Ganek v. Leibowitz

• Decision Date: 10 March 2016
• Docket Number: 15cv1446
• Parties: David Ganek, Plaintiff, v. David Leibowitz, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

167 F.Supp.3d 623

David Ganek, Plaintiff,

v.David Leibowitz, et al., Defendants.

15cv1446

United States District Court, S.D. New York.

Signed March 10, 2016

Anna Benvenutti Hoffmann, Nick Joel Brustin, Cochran, Neufeld & Scheck, LLP, Barry C. Scheck, Farhang Heydari, Neufeld Scheck & Brustin, LLP, New York, NY, for Plaintiff.

Andrew Edward Krause, United States Attorney's Office, New York, NY, for Defendants.

MEMORANDUM & ORDER

WILLIAM H. PAULEY III

, District Judge:

In late 2010, the FBI executed coordinated raids on several well-known hedge funds in a highly touted investigation of insider trading. Plaintiff David Ganek's hedge fund, Level Global Investors, was among them. These raids sent shockwaves through Wall Street: investment bankers and traders were indicted, and multi-billion dollar businesses—including Level Global—were shuttered. But five years later, a different picture has emerged. The Second Circuit rejected the Government's theory of insider trading. Criminal convictions were vacated, and indictments dismissed. And in a nearly unprecedented role-reversal, the SEC agreed to disgorge monies it collected in connection with consent judgments against various hedge funds, including Level Global.

In this lawsuit, Ganek seeks to hold government agents accountable for violating his civil rights. More specifically, Ganek alleges that the affidavit supporting the Government's request for a search warrant of Level Global and his office contained deliberate misrepresentations that were later exposed by sworn trial testimony of an FBI agent and a government informant. According to Ganek, that fabricated evidence led a magistrate to issue the warrant. That, coupled with Defendants' heavy-handed tactics, precipitated the closure of Level Global. These are grave allegations.

Ganek asserts claims against FBI Agents Holly Trask, David Makol, James Hinkle, and Matt Komar, along with Assistant United States Attorneys Reed Brodsky and David Leibowitz, for violation of his Fourth and Fifth Amendment rights. Ganek also asserts claims against Preet Bharara, Boyd Johnson III, Richard Zabel, Christopher Garcia, Marc Berger, Diego Rodriguez, Rachel Rojas, David Chaves, and Patrick Carroll (the “Supervisor Defendants”) for supervisory liability and failure to intercede. Ganek seeks compensatory and punitive damages pursuant to Bivens v. Six Unknown Agents of the Federal Bureau of Narcotics, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971)

.

Defendants move to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6)

. For the following reasons, Defendants' motion is granted in part and denied in part.

BACKGROUND

The following facts are gleaned from the Complaint and presumed true for purposes of this motion. Level Global was a successful hedge fund with approximately 60 employees and $4 billion in assets under management. (Compl.¶¶ 38, 41.) Ganek was its co-founder and principal partner. (Compl.¶ 39.)

In 2008, federal authorities in New York began devoting significant resources to insider trading investigations among financial professionals. (Compl.¶ 48.) In 2009, Bharara, the United States Attorney for the Southern District of New York, publicized those investigations as one of his signature initiatives, noting that his Office was utilizing “covert methods” typically reserved for violent criminal organizations, including informants and wiretaps. (Compl.¶¶ 49–53.)

Agents Trask, Komar, Makol and Hinkle conducted the investigation. (Compl.¶ 56.) Chaves and Carroll led the investigative team, and Rodriguez and Rojas had overall supervisory responsibility within the FBI.¹ (Compl.¶ 57.) These FBI personnel worked closely with Assistant United States Attorneys in the SDNY's Securities and Commodities Task Force (the “Task Force”). (Compl.¶¶ 58–59.) Brodsky and Leibowitz reported to Berger and Garcia. Zabel supervised the Task Force, and reported to Johnson and Bharara. (Compl.¶¶ 59–60.) In 2010, the Task Force targeted Level Global. (Compl.¶ 55.)

The Level Global Investigation

In October 2010, Agents Hinkle and Makol (with Chaves' approval) approached Sam Adondakis in Central Park and confronted him with wiretap evidence implicating him in insider trading. (Compl.¶¶ 63–66.) Earlier that year, Level Global had fired him from his research analyst position for violating compliance protocols. (Compl.¶ 47.) Confounded with recorded evidence of his own illegal activity, Adondakis agreed to cooperate with the FBI. (Compl.65–67.)

On November 2, 2010, Adondakis met with AUSAs Brodsky and Leibowitz, and FBI Agents Makol, Hinkle, and Komar, and admitted to trading on material non-public information regarding Dell (the “November 2, 2010 Meeting”). (Compl.¶¶ 68–69.) He implicated two other Level Global employees in insider trading, explaining that they also received the information, knew its source, and traded on it. During the November 2, 2010 Meeting, Adondakis explicitly denied ever informing Ganek that the information came from corporate insiders. (Compl.¶ 70.)

Ganek alleges (upon information and belief) that the participants in the November 2, 2010 Meeting shared the results of the interview with FBI Agents Trask, Chaves, Carroll, Rojas and/or Rodriguez, and with AUSAs Berger, Garcia, Zabel, Deputy U.S. Attorney Johnson and/or U.S. Attorney Bharara. (Compl.¶ 77.)

On November 19, 2010—the same day the Wall Street Journal reported that federal insider-trading charges against financial professionals were imminent—Agent Trask signed a 37–page affidavit outlining the evidence uncovered in the Government's investigation (the “Affidavit”). (Compl.¶¶ 80–83.) The Affidavit stated that Adondakis “obtained Inside Information from insiders at public companies through third-party consultants.... On Certain occasions, ADONDAKIS provided this Inside Information to DAVID GANEK, ... and GANEK ... executed and caused others to execute certain securities transactions based, in part, on the Inside Information, and that ADONDAKIS informed GANEK ... of the sources of the Inside Information. (Krause Decl. Ex. A, (ECF No. 45–1) at ¶ 13 (emphasis added).)² In the same paragraph, the Affidavit again stated that “ADONDAKIS ... informed GANEK ... regarding the sources of the Inside Information .”³ Ganek maintains that Defendants fabricated the Affidavit's allegation that Adondakis informed him of the sources of any inside information.

The Raid on Level Global

On November 21, 2010, Trask presented the Affidavit to a magistrate as part of a search warrant application. (Compl.¶ 89.) As a target of the warrant, Ganek's personal office, financial records, correspondence, photographs, address book, phone records, and cell phone would be subject to search. (Compl.¶ 91.) The magistrate issued the search warrant. The following morning, the Government executed it on Level Global as part of coordinated raids on certain hedge funds. (Compl.¶¶ 92–94.) Two dozen agents searched Level Global's offices, seizing, inter alia, Ganek's personal files and cell phone. (Compl.¶ 105.)

Prior to executing the warrant, the Government alerted the Wall Street Journal that it would be raiding Level Global's offices. Because the Wall Street Journal was “tipped off,” it was able to publish photographs of FBI agents carrying boxes of documents from Level Global's office. (Compl.¶ 95.) Only the Supervisor Defendants had the authority to alert the media. (Compl.¶ 98.) Ganek alleges that the sole purpose of executing a highly publicized raid on his office (as opposed to issuing a subpoena), was to maximize publicity and damage his reputation. (Compl.¶ 100.) On the day of the raid, the Government provided Ganek's attorney with a copy of the warrant, but not the Affidavit. (Compl.¶ 106.)

Level Global's Closure

On December 20, 2010, Level Global representatives met with Zabel, Chief of the Criminal Division, and AUSA Leibowitz to express concern about unnecessary damage inflicted on the firm. (Compl.¶ 110.) Zabel and Leibowitz informed Level Global that the likely commercial consequences of the raid “had been carefully considered at the highest levels” before it was initiated. (Compl.¶ 110.) In the wake of that rebuff, Ganek commissioned an independent investigation by outside counsel. In January 2011, the investigation concluded that Ganek did not engage in insider trading. (Compl.¶¶ 108–09, 112.) Nevertheless, Level Global's investors were unnerved, and continued to have questions regarding the scope of the Government's investigation that Ganek could not answer because the Affidavit remained sealed. (Compl. 113–17.

)

In a last-ditch effort to save his business, Ganek had one of his attorneys—a former AUSA in the Southern District of New York—reach out directly to Bharara. On February 3, 2011 one or more of the FBI Defendants drafted a report about the November 2, 2010 Meeting (the “Report”). The Report reiterated the fabricated information: that Adondakis informed the agents that Ganek was “interested in the Dell information when Adondakis told [him] because the information came directly from contacts at Dell. ” (Compl.¶ 111.) On February 4, 2011, Ganek's attorney informed Bharara that Level Global would close if the Government failed to clarify publicly that Ganek was not a target of the insider trading investigation. (Compl.¶¶ 119–21.) Although Bharara promised to look into the matter, none of the Defendants followed up with Adondakis. Three days later, Bharara explained to Ganek's attorney that although Bharara and his team understood that Level Global might be forced to close its doors, he would not intervene. (Compl.¶ 123.) With his options exhausted, Ganek shut down Level Global on February 11, 2011. (Compl.¶ 128.)

On the same day that Level Global closed, AUSA Leibowitz and others met with Adondakis for the first time since the November 2, 2010 Meeting. (Compl.¶ 129.) At that February 11, 2011 meeting, Adondakis reiterated that he never informed Ganek about his sources. (Compl.¶ 130.) Ganek...