As expected, criminal charges were filed against SAC Capital today, and the fallout is spreading fast. The criminal indictment against the hedge fund firm makes mention of an “insider trading group” at one of the firm’s competitors. Reuters reports that the competitor was Citadel, although the firm denies having such a group.

SAC Capital Citadel

Reuters’ sources point the finger at Citadel

Emily Flitter and Katya Wachtel report that charges filed against SAC Capital today in New York make reference to Richard Lee, a former employee at SAC Capital. They said Lee left from a firm which was identified in the indictment as “Hedge Fund A” and came to SAC Capital even though he was a known member of Hedge Fund A’s “insider trading group.”

The source went on to claim that Hedge Fund A is Citadel, which was one of a number of funds which received subpoenas from federal officials in 2010 when they were running a broader investigation into insider trading on Wall Street.

Citadel denies the claims from Reuters’ sources

Katie Spring, a spokesperson for Citadel, told Reuters that Lee worked there between 2006 until 2008 when he was fired. She said he was part of the Principal Strategies team, which was a member arbitrage group. The group was shut down due to the financial crisis. She went on to say that they don’t have an insider trading group at Citadel. According to Spring, Lee violated one of the firm’s policies when he was transitioning to become head of the Principal Strategies team. However, she said his violation didn’t have anything to do with insider trading.

Charges filed against Lee

Lee pleaded guilty to securities fraud charges this week and is now cooperating with officials. The case filed against Lee indicates that he had insider information about a number of public companies while he was working at SAC Capital. One of those companies was Yahoo! Inc. (NASDAQ:YHOO), which he reportedly traded just before the company’s earnings report and the announcement it made about a partnership.

SAC Capital and Citadel have reportedly been rival firms for some time as each have attempted to poach the other’s best talent.