Updated from 7:41 a.m. EDTS3 Partners, a hedge fund advisory firm, is attracting some unwanted attention following last week's arrest of a New York man on charges of pilfering top-secret computer files about Morgan Stanley's ( MS) clients. Federal prosecutors on Friday charged Ira Chilowitz, a former Morgan Stanley consultant, with stealing the confidential pricing information from Morgan Stanley's hedge fund prime brokerage group and passing it on to a "co-conspirator'' at a midtown company that provides advisory services to hedge funds. Prosecutors in Manhattan did not identify either the co-conspirator or the firm. But people familiar with the investigation confirmed that the firm is S3 and that the unidentified co-conspirator is a former director. These same people say the former S3 director, who previously worked in Morgan Stanley's prime brokerage group, was recently fired. A representative for S3 declined to comment. A spokesman for Michael Garcia, U.S. attorney for the southern district, declined to comment. A lawyer for Chilowitz did not return several phone calls. A Morgan Stanley spokesman says prosecutors took action after Morgan Stanley notified them about the "misappropriation of proprietary and confidential'' information. The stolen information is of great value to Morgan Stanley because it reveals that not all its hedge funds pay the same price for various prime brokerage services. In the wrong hands, the information could give hedge funds leverage in negotiating payment schedules with the big Wall Street firm. S3 was founded by Robert Sloan, the former head of prime brokerage at Credit Suisse, in June 2003. The firm provides a wide array of services ranging from helping hedge funds negotiate prime brokerage fees to managing money to working with small brokerages in arranging stock loans. The 14-employee shop, which has a number of former executives from Morgan Stanley, Lehman Brothers ( LEH), Barclays Capital ( BCS) and Deutsche Bank ( DB), has $618 million in client assets under management.