In an opinion today, the Second Circuit reversed a ruling by Judge Pauley (see our prior coverage here) that had allowed hedge fund manager David Ganek to proceed with claims against the U.S. Attorney and various other government officials over a raid that led to the collapse of his hedge fund, Level Global. Mr. Ganek had alleged, in essence, that the affidavit supporting the raid was based on false testimony suggesting he knowingly traded on inside information.

The Second Circuit reversed, primarily on the ground that, even absent the allegedly false information, the raid would have been supported by probable cause:

"[M]uch has been made by Ganek and, to a degree, the district court about whether or not Ganek knowingly traded on inside information. While evidence that Ganek knowingly traded on inside information would enhance probable cause to search his office, the absence of such mens rea evidence would not preclude probable cause for such a search. One has only to imagine a scenario where the government seeks to search the residence of a person who left a box on a subway car that exploded and killed numerous persons. The person may have known the contents of the box when he acted, or he may have been an unwitting dupe. No matter. Whatever his mens rea, his involvement in the actus reus of a crime would sufficiently establish probable cause to search his residence for criminal evidence pertaining to the bombing.

So here, where the warrant affidavit clearly alleges knowing insider trading by various LG employees, as well as Ganek’s trading on some of the same inside information, and where correction of the affidavit leaves only his mens rea at issue, there was at least a fair probability to think that his office was among the LG premises where evidence of an insider trading scheme would be found."