Authorities Trim the Hedge Funds; City FOCUS

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Byline: Lucy Farndon

ALREADY reeling from a crisis of confidence and poor investment returns, hedge funds face another major threat - in the form of the US authorities. Wall Street is abuzz with talk about the surprise arrest of Galleon Group's founder Raj Rajaratnam last Friday on insider dealing charges.

For many, it is hard to know what is more shocking - the allegation that Rajaratnam was working with a wide network of executives from highly respected firms or the extent of the secret monitoring and phone tapping undertaken by American investigators.

In what seems to be a step change in the determination to crack down on white-collar crime, it has emerged that federal investigators had spent two years probing Galleon and other firms, having …