The Federal Bureau of Investigation (FBI) stormed into offices of three large hedge funds in New York, Connecticut and Massachusetts and seized documents in a string of raids that is being billed as a crackdown on insider trading by hedge funds, mutual funds and investment bankers.

Armed with search warrants, FBI agents on Nov. 20 searched the New York offices of Level Global Investors LP, and the Stamford, Conn., headquarters of Diamondback Capital Management LLC.

The federal investigators also searched a third site at 30 federal St. in Boston, where the headquarters of hedge fund Loch Capital Management LLC is located.

The FBI said in a statement that the raids in the three states were court authorized and part of an ongoing investigation on insider trading but refused to comment further as court documents are under seal.

Level Global and Diamondback are run by former managers of SAC Capital Advisors LP, of Stamford. According to regulatory filings, Level Global manages $3.09 billion while Diamondback manages about $4.71 billion. Incidentally, Level Global partner Anthony Chiasson is an associate of former hedge fund Galleon Group fund manager Todd Deutsch. Galleon was ensnared in an insider trading case last year that has generated 14 guilty pleas. Galleon founder Rajaratnam, who has denied wrongdoing and has pleaded not guilty, is expected to go to trial in early 2011.

Loch Capital, a hedge fund focused on technology investments, is run by brothers Timothy and Todd McSweeney who are allegedly linked to hedge fund manager Steven Fortuna. Last year Fortuna pleaded guilty to charges stemming from an earlier insider trading investigation by the Securities and Exchange Commission (SEC). The SEC has refused to comment on the raid on Loch Capital.

The raids have rattled Wall Street and several corporate defense lawyers confirmed that they were bombarded by a series of calls from traders seeking legal counseling.

The raids came barely a month after Manhattan Attorney Preet Bharara warned about the dangers of insider trading.

According to Bharara, many Wall Street traders are tempted to indulge in insider trading as it is like a performance enhancing drug that provides the illegal 'edge' to outpace their rivals and make even more money.

Disturbingly, many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged, and wealthy insiders in modern finance, Bharara had told New York City Bar Association last month.