NEW YORK (Reuters) - FBI raids on hedge funds were a sign that prosecutors feared evidence in a widening insider trading probe could be destroyed, but the dramatic daytime searches may also have been intended to shake up the secretive hedge fund world, legal experts said.

Law enforcement officials carry boxes marked "Evidence" out of the building housing Loch Capital Management in Boston, November 22, 2010. REUTERS/Brian Snyder

Investigators most likely swooped down on the funds Monday in Connecticut and Massachusetts because they had a major concern that subpoenas for information would not be properly obeyed, lawyers and investigators said.

The raids served another purpose: warning the broader financial industry that a serious prosecution effort was underway.

“I think there is a desire to send a message to people who are not currently the target of criminal investigations that there is a cost to engaging in this type of potentially criminal behavior,” said Ross Gaffney, a former FBI agent in Miami who is now a principal in the forensic consulting firm Gaffney Gallagher Philip.

Gerald Lefcourt, past president of the National Association of Criminal Defense Lawyers, said that the only justification for such search warrants is the government’s concern that documents could either be destroyed or simply not produced.

“There may be another motive, but I view this as an improper motive -- and that is to simply scare people,” Lefcourt said. “And it certainly does have that effect.”

Prosecutors and the FBI need approval by federal judges before carrying out search warrants. They need to show proof that the destruction of evidence is highly probable.

Monday’s raids on three large hedge funds in Connecticut and Massachusetts with billions of dollars each under management are a precursor to a series of new insider trading cases to be unveiled, possibly by year end, lawyers with knowledge of the situation said.

Agents searched and removed documents or information from computer servers at Diamondback Capital Management LLC and Level Global Investors LP in Connecticut and Loch Capital Management, a Boston-based firm.

The raids have grabbed headlines and sent shivers through hedge funds just more than a year after prosecutors charged Galleon hedge fund founder Raj Rajaratnam with conspiracy and securities fraud related to suspected insider trading.

U.S. prosecutors described that case as the biggest probe of insider trading at hedge funds in the United States. In all, 23 hedge fund managers, traders, company executives and lawyers were charged. Fourteen have pleaded guilty.

Rajaratnam, who is free on bail, has pleaded not guilty and is expected to go on trial in January.

Lawyers and former agents say the new investigation could go on for weeks or months yet. Potential cooperators could be talking to prosecutors and the FBI behind the scenes, some may come forward, or others may clam up as a result of the raids.

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“This is not standard operating procedure in a white-collar case,” said Ellen Zimiles, a former federal prosecutor who heads global investigations and compliance at Navigant Consulting. “The fact that three entities were searched at the same time could mean investigators believe there is a connection, or this is a larger investigation. This is a very clear warning shot.”

Lawyers and former FBI investigators said decisions to serve search warrants are not taken lightly. One disadvantageous outcome could be investigators overwhelmed with information that might have been pared down by a narrowly targeted subpoena for documents and trading records.

What agents look for when they enter any premises depends on the scope of the search warrant, said Ken Springer, a former FBI agent who now runs Corporate Resolutions, a New York-based company investigations firm.

“They are not asking too many questions, or interviewing employees of those firms. They’ll say: ‘Take us to the IT department, so and so’s desk or the accounting office.’”

He said that when agents use court-approved search warrants to remove documents from offices, “it doesn’t mean that someone is guilty.”

Springer said, however, that the Galleon probe and the new inquiry into the three hedge funds signal that “maybe insider trading is bigger than we thought.

“Years ago, people thought it was a small, old-boy network; but maybe it’s bigger than that, with electronic trading and other software that gives certain people an unfair advantage.”