NEW YORK (Reuters) - Hedge fund Visium Asset Management, which has been embroiled in an insider trading case, told investors on Friday evening that it will close down its flagship fund and sell another portfolio to asset manager Alliance Bernstein.

Jacob Gottlieb, who founded the firm 11 years ago, disclosed the news in a letter just two days after the U.S. government charged a Visium partner with insider trading for having allegedly used confidential tips about drug regulatory approvals.

“Given the uncertainty relative to the final outcome of the recent regulatory developments, the negative impact of the resulting publicity, and the substantial investor withdrawals, it became clear that maintaining the status quo was increasingly untenable for the firm,” Gottlieb wrote in the letter, which was seen by Reuters.

Visium expects to sell its Visium Global Fund to AllianceBernstein. Gottlieb said the fund’s investment team and some support staff will move to the New York-based asset management firm, but that he will not be switching over.

Visium will be closing down its health-care-focused Visium Balanced Fund LP and related portfolios and told investors in the letter that they will be informed separately about details. To treat all investors fairly, the letter said that Visium would begin returning money to clients later this summer. But some money will be held back to “establish a reserve for possible liabilities and other contingencies,” the letter said.

Federal officials on Wednesday arrested Sanjay Valvani, a Visium partner who focused on trading pharmaceutical stocks, and accused him of having fraudulently made $25 million by gaining advance word about U.S. Food and Drug Administration approvals of generic drug applications.

Valvani pleaded not guilty to five counts including securities fraud, wire fraud and conspiracy and was freed on $5 million bond secured by his home.