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The FBI seized documents in New York, Connecticut and Massachusetts. The firms raided were Level Global Investors LP and Diamondback Capital Management LLC, both run by former managers of billionaire Steven Cohen's SAC Capital Advisors. The third firm was Loch Capital Management LLC, a Boston-based hedge fund focused on technology investments. 

Both Level Global and Diamondback are said to have cooperated fully with the investigations "for the benefit of [their] investors." Loch did not release any information about their cooperation. 

The hedge fund industry is worth $1.7 trillion. Diamondback oversees approximately $5 billion in assets; Level Global oversees $4 billion; and Loch was attached to $750 million at the start of 2010.

Loch had close ties with a witness who pleaded guilty in last year's insider trading probe case based on the hedge fund Galleon group. 

Firms involved in various aspects of the investigation include Goldman Sachs, Ziff Brothers, Jana Partners, TPG-Axon Capital, UBS AG's Financial Services Inc. and Deutsche Bank AG. More raids are likely in the next few days.

Authorities say charges may be filed as early as this year. Lawyers said a part of the probe appears to focus on former SAC traders and managers that traded in similar stocks. 

The Wall Street Journal disclosed information about the probe Friday. According to the News Hub, insider-trading cases are typically hard to prove and this could be the largest insider-trading case ever. Authorities are preparing charges that target consultants, investment bankers, hedge-fund and mutal-fund traders and analysts across the US. Authorities are watching potential subjects of the probe that may flee or destroy documents, making the investigation more difficult. 

In insider trading cases, the prosecution has to demonstrate the intent to defraud to the juries. The issue can be blurry because insider trading is not defined by law. The bottom line is to separate criminal and legitimate behavior, but that line has been straddled by courts since the 1929 stock market crash.

Reach Reporter Kristen Villarreal here.