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Inmate named in extortion bid of hedge fund SAC

Date: Thursday, February 25, 2010
Author: Reuters

What may sound like the beginning of a joke is actually the increasingly bizarre plotline of the unfolding criminal case against Milton Balkany, an Orthodox Jewish rabbi and director of religious school in Brooklyn, New York.

Late last week prosecutors arrested Balkany for trying to persuade the hedge fund manager to donate $4 million to two schools in return for keeping the imprisoned investment manager from talking about the fund's alleged insider trading deals.

The bizarre scheme is complete with tape-recorded telephone conversations played out late last year in Brooklyn, the Otisville Correctional Facility in Otisville, N.Y., and the hedge fund's Stamford, Connecticut office, the government said.

The government did not name the hedge fund or the inmate.

Reuters last week identified the manager as Steven A. Cohen, whose SAC Capital Advisors manages $12 billion and ranks as one of the world's biggest and most successful fund firms.

According to the government's allegations, Balkany was trying to take advantage of media reports that prosecutors might be targeting SAC in an ongoing investigation into insider trading in the hedge fund industry.

Legal sources identified Hayim Regensberg, 44, as the inmate whom Balkany said he had spoken to about SAC. Regensberg was convicted last year of defrauding about a dozen people in a three-year long Ponzi scheme.

He is now serving an eight-year sentence at the Otisville prison located in the Catskill Mountains that is known to have many observant Jewish inmates.

According to prosecutors, the investigation of Balkany began in December, after he placed a phone call to SAC's offices and informed a lawyer for the hedge fund that he had information that could be of value to them.

The 63-year-old rabbi allegedly told lawyers for the hedge fund that Regensberg had information about insider trading at SAC and was being pressured by the government to cooperate.

The government said that none of what Balkany was telling either SAC Capital or prosecutors was true.

Soon after, Balkany approached the hedge fund and SAC's lawyers alerted the government to the apparent extortion scheme.

It is unclear whether Balkany and Regensberg, who has not been accused of any wrongdoing in this case, ever met, sources said. Regensberg's wife did not return several phone messages.

Regensberg's attorney Robert Baum, who defended the investment manager and is working on his appeal, declined to comment on the Balkany case.

Yusill Scribner, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment.

A spokesman for SAC Capital also declined to comment.

But Balkany's lawyer, Benjamin Brafman, described his client's actions as being fueled more by "bad judgment" not criminal intent.

"I do not believe Rabbi Balkany's intention was criminal," said Brafman. "I think there is a difference between using bad judgment and acting with criminal intent. This is a case of very bad judgment."