NEW YORK (Reuters) - Federal authorities have expanded an investigation into insider trading on Wall Street, bringing to more than one dozen the number of subpoenas sent to hedge funds and other investment firms over the past two weeks, people familiar with the inquiry said.

Pedestrians pass the building housing Loch Capital Management in Boston, Massachusetts November 22, 2010. REUTERS/Brian Snyder

The new subpoenas signaled an intensification of one strand of a federal investigation focusing on funds that did business with so-called expert network firms. Those firms help investment managers meet industry experts to research a specific industry.

U.S. stocks, which had broadly rallied earlier on Tuesday, retreated after a Reuters report about the new subpoenas, although investors blamed other factors for the market’s about-face as well.

Last week, federal prosecutors in Manhattan sent more subpoenas to several large hedge funds, said the sources, who asked not to be named because the investigation is not public.

U.S. authorities began subpoenaing big-name investors, including Wellington Management and SAC Capital Advisors, on November 22, the same day Federal Bureau of Investigation agents raided hedge funds in three states.

The Department of Justice had no comment.

The initial subpoenas went to a handful of firms whose employees had worked with John Kinnucan, an independent analyst who does business under the name Broadband Research. FBI agents approached Kinnucan to have him record conversations with clients, but the Portland, Oregon-based analyst refused and alerted his contacts to what the FBI was asking.

FOLK HERO

Now there has been another round of more than a dozen subpoenas, one of the sources said. The names of the funds that received subpoenas most recently are not known.

Kinnucan himself, who has become something of a folk hero on Wall Street for having defied the FBI, has now been served with a subpoena. The former hedge fund manager is suspected of having passed on nonpublic information about technology companies and now has until December 13 to deliver two years worth of business documents to federal agents.

In a telephone interview Kinnucan said that he fully expects to be arrested by the FBI at some point. “That’s just how they operate,” he said adding “I assume the worst and hope for the best.” He said he has done nothing wrong.

Kinnucan’s contacts read like a who’s who of hedge funds and mutual funds and included analysts and portfolio managers at Maverick Capital, Citadel, Coatue Management, Janus Capital Group and Ameriprise Financial. Janus, Citadel, SAC and Wellington received subpoenas in the first round.

But there were also smaller names on the list. Manatuck Hill Partners, Alkeon Capital, Sonar Capital Management, Platte River Capital and Friess Associates. Repeated calls to these firms have not been returned.

Not all 20 firms who had employees on that email exchange with Kinnucan received subpoenas in the first round, sources said.

Federal authorities may also be interested in funds that traded on pharmaceutical buyout deals after being tipped on the deals by consultants and employees of investment banks.

So far prosecutors have charged just one person in the new inquiry, which is related to information generated from last years’ Galleon Group case, the largest insider trading case in years.

IMPROPER TRADING?

In a separate but a potentially related development to the insider trading investigation, federal prosecutors in a recent court filing have outlined new information about alleged improper trading by former SAC Capital analyst Jonathan Hollander.

In a December 1 letter to a federal judge, prosecutors identified Hollander as one of “four personal friends” to whom former UBS investment banker Nicos Stephanou provided “inside information” between 2004 and 2006.

During that time, Hollander was an analyst with CR Intrinsic, a hedge fund managed by Steven Cohen’s $12 billion SAC Capital. Prosecutors said in the letter that Hollander, on at least one occasion, “traded in his personal account and the hedge fund where Hollander worked also traded.” Hollander left SAC in 2008.

A spokesman for SAC declined to comment.

To date, prosecutors have not charged Hollander with any wrongdoing and the five-year statute of limitations for filing insider trading charges against him will run out early next year. But Reuters previously has reported that on at least two occasions Hollander gave “proffer statements” to prosecutors in which he explained his actions and answered questions authorities had about others at Cohen’s hedge fund.