Insider Case Snares Moore Capital

Trader at London office of hedge fund among those arrested in what authorities describe as a massive insider-trading scheme.

Moore Capital founder Louis Moore Bacon

Hedge funds like to brag that they didn't engage in the risky activities that landed big Wall Street banks at the center of the financial crisis, but regulators are beginning to paint a different picture.

While the banks were packaging and unloading deadweight mortgage securities and other products on each other and unsuspecting clients (so the criticism goes), some traders at hedge funds were engaged in questionable trading, according to regulators.

Moore Capital is the latest major hedge fund to be associated with allegations of insider trading. British regulators raided the $14 billion hedge fund's London offices Tuesday and arrested one of its traders, along with a worker atDeutsche Bank ( DB - news -people ) and four others around the City, in what they are calling a massive insider trading scheme.

In a statement Moore Capital said the investigation doesn't involve any of its funds. The trader, who worked on the equity execution desk, was put on administrative leave and Moore says it's cooperating.

Deutsche Bank also said in a statement "we are cooperating with authorities as they look into this matter."

Moore Capital was founded by reclusive billionaire Louis Moore Bacon in the 1980s and had success recently. Its main fund was up 22% last year. It has been recruiting traders from big firms like Goldman Sachs ( GS - news - people ) andCitigroup ( C - news - people ). In February it signed up former top Citi executive Michael Carpenter.

Regulators on both sides of the Atlantic, stung by accusations they fell down on the job during the bubble years, have been eager to prove they are cleaning up the markets, and hedge funds have been big targets.

Tuesday's case involved nearly 150 investigators and raids on 16 offices in an unprecedented joint effort by the Financial Services Authority and the Serious Organised Crime Agency. The probe started more than two years ago.

It comes six months after U.S. regulators targeted Galleon Group, and its founder, billionaire Raj Rajaratnam. Galleon traders have been accused, along with more than a dozen others, of insider trading in stocks like Advanced Micro Devices. Galleon, once with $3 billion of assets, shut down shortly after the October 2009 arrest of Rajaratnam, who is maintaining his innocence.