(Reuters) - The FBI raided three hedge funds in connection with a widening probe into insider trading, the Wall Street Journal said on Monday.

Diamondback Capital Management LLC and Level Global Investors LP, two Connecticut funds run by former managers of Steven Cohen's SAC Capital Advisors, were among those raided, according to the report.

Also raided was Boston-based Loch Capital Management, according to the report. Loch has had close ties with a witness who pleaded guilty in a separate insider trading probe centered on the Galleon Group hedge fund.

The raids come as federal prosecutors prepare to unveil a series of new insider trading cases against hedge fund traders, consultants and Wall Street bankers, several lawyers familiar with the investigation said.

This is on top of what prosecutors have described as the largest U.S. hedge fund insider trading case ever. That case is centered on Raj Rajaratnam's hedge fund Galleon Group, and has led to criminal or civil charges against at least 23 people since being announced just over one year ago.

"The Justice Department promised a more muscular approach to white-collar crime, and is delivering," said Eugene O'Donnell, a professor at the City University of New York's John Jay College of Criminal Justice.

FBI spokesman Richard Kolko on Monday said the agency had executed search warrants in connection with an ongoing investigation. He declined to discuss the nature of the probe or the targets. A different FBI spokesman confirmed a raid took place at a downtown Boston building housing Loch offices.

Started in 2005, Diamondback oversees roughly $5 billion of assets and is based in Stamford, Connecticut. Based in nearby Greenwich, Level Global has roughly $4 billion of assets and is run by SAC alumnus David Ganek. Loch once had more than $2 billion of assets.

None immediately returned requests for comment.

DETERRENCE

Lawyers familiar with the expanded probe said charges could be filed this year, and come in several cases rather than one large case targeting the hedge fund industry. The lawyers asked not to be named because the investigations are ongoing.

"Especially in this kind of a case, the end game is deterrence," O'Donnell said. "The number of prosecutions will always be small, but deterrence can have a multiplier effect that stops untold numbers of other people from doing this kind of conduct."

In the case centered on Galleon, 14 people have pleaded guilty to criminal charges, Rajaratnam and seven others have pleaded not guilty, and one is at large.

Among those to plead guilty is Steven Fortuna, a former managing director at Boston-based hedge fund S2 Capital LLC believed to be friends with Loch's co-founders, the twin brothers Timothy and Todd McSweeney.

Speaking last month to the New York City Bar Association, U.S. Attorney Preet Bharara in Manhattan called illegal insider trading a "rampant" and even growing problem that prosecutors need more tools to fight.

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