The government’s highly publicized insider trading investigations took another turn on Monday. Those inquiries, as discussed here, appear to focus on traders, mutual funds, hedge funds and others who use expert networks. They at least suggest that the government may be looking to expand the definition of insider trading beyond that currently authorized by the courts.

Diamondback Capital Management LLC, one of the funds raided last week, sent a letter to shareholders about the government seizures. The firm assured shareholders it is not a target of the insider trading probes. Rather, one current and one former employee of the firm appear to be targets according to information now admitted by the government. The employee has been placed on leave. The letter is reported in the WSJ blog, available here.

Diamondback’s letter is clearly an effort to quell shareholder concerns in the wake of the raid. Perhaps the government’s concession that the fund is not a target will mitigate the injury caused by the harsh blue collar tactics selected by the Manhattan U.S. Attorney’s Office. Perhaps not. Damage control is difficult at best.

At the same time, the revelation only servers to underscore the questions about the selection of the heavy handed tactics. To be sure the government is entitled to use a search warrant in a criminal investigation to gather information, assuming it properly obtains a ruling from the court.

Equally clear, however, is the fact that the government has a choice of tactics. It can gather the requisite information with a properly issued search warrant. It can gather the same information with a grand jury subpoena. It can also simply ask a legitimate business like Diamondback to cooperate. The search warrant generates the kind of negative publicity Diamondback is now trying to mitigate. It is also an implied accusation of guilt in the eyes of many, another fact the fund is trying to ameliorate. The grand jury subpoena is secret because it seeks to avoid unnecessary publicity and the resulting implied accusation of guilt. A request for cooperation does not generate any publicity or an implied accusation of wrongdoing.

In making its choice, the government knew the firm was not a target. The government knew Diamondback is a legitimate trading operation like dozens of others. The government knew it had suspicions about one current employee. It also knew the consequences of an FBI raid. Yet it went forward with the mob investigative type tactic. All of this suggests that perhaps its time for the courts to require the government to justify its tactical choice. In the future, before issuing a search warrant authorizing the FBI to storm a legitimate business perhaps the court should ask if the tactic is really necessary. That simple question may in the future prevent the kind of fall-out Diamondback is now trying to repair.

Irving R. Kaufman Memorial Securities Law Competition. From March 25 to March 27, Fordham Law School’s Moot Court Board will host the Thirty-Sixth annual Irving R. Kaufman Memorial Securities Law Competition. It features complex securities law problems, top student competitors from around the country, and esteemed securities law jurists, academics, and practitioners. This year, the final round will has an impressive panel of distinguished jurists: Judge Brett M. Kavanaugh (D.C. Cir.), Judge Paul J. Kelly, Jr. (10th Cir.), Judge Boyce F. Martin, Jr. (6th Cir.), S.E.C. Commissioner Troy A. Paredes, and Judge Richard A. Posner (7th Cir.). If you are a student or affiliated with a law school, you should consider registering for the competition. Registration closes December 6, 2010!

The Moot Court Board is also seeking practitioners to serve as preliminary round judges, on March 25th and 26th, and grade competitor briefs, from February 21 to March 7. Participation is welcome from anyone with interest, with all levels of experience, whether in litigation, transactions, securities, finance, in-house, or public service. And CLE credit is available. If you are interested please contact: Gabriel Gillett of the Moot Court Board at