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By Douglas Gillison and Chris Prentice

NEW YORK (Reuters) -The FBI last month searched the offices of a California real estate investment firm Continuum Analytics, which is linked to bad loans recently disclosed by Zions and Western Alliance, according to legal correspondence seen by Reuters.

Continuum Analytics is an affiliate of the little-known Cantor Group funds which Zions and Western Alliance have said defaulted on about $160 million in loans, spooking markets already on alert for signs corporate credit is weakening.

On September 11, FBI agents searched Continuum's Newport Beach, California, offices, law firm Paul Hastings wrote in a September 12 letter seen by Reuters.

Representatives for Continuum did not respond to emails and calls seeking comment. The FBI is an enforcement arm of the Justice Department. Spokespeople for the agencies did not respond to requests for comment. An attorney for Cantor Group said the firm upheld the terms of the Zions and Western Alliance loans and did not provide comment on the government scrutiny.

Allen Matkins, a law firm that represents other entities linked to Continuum, wrote in an October 2 letter that it learned on September 11 that certain of its clients were the subject of search warrants "in connection with a pending criminal investigation," and that a grand jury had been convened in the case.

Prosecutors typically convene a grand jury when they intend to gather more evidence. The letters did not say which specific criminal authority was leading the case or what potential misconduct or individuals it was focused on.

Criminal investigations do not necessarily mean any wrongdoing has occurred and many do not result in charges.

Reuters is reporting the FBI search and probe for the first time. The government scrutiny could have ripple effects for what legal filings and public records show is a complex web of investors and lenders tied to Continuum's real estate dealings, some of which are entangled in civil litigation.

Paul Hastings and Allen Matkins are representing parties embroiled in a complex real estate dispute. The letters relate to those proceedings. The Allen Matkins letter was disclosed in a California court.

When asked about the letter by Reuters, a lawyer for Paul Hastings said the firm was "working to unravel multiple levels of alleged fraud," but did not provide more details.

Allen Matkins did not respond to calls and emails seeking comment.

PASSIVE INVESTORS

Zions on October 15 sued Cantor Group fund guarantors Andrew Stupin and Gerald Marcil, among others, to recover more than $60 million in soured commercial and industrial loans. The next day, Western Alliance flagged that it had sued the pair and a different Cantor fund in August to recover nearly $100 million.

Both suits allege key information was misrepresented or not disclosed, breaching the loan terms. Western Alliance also alleges fraud on the part of the Cantor fund.

Continuum acquires and manages distressed real estate assets for groups of investors, and its largest investors include Stupin and Marcil, according to a February arbitration ruling related to the real estate dispute. That ruling found Cantor "consists solely" of Continuum's legal owner, Deba Shyam, and shares the Continuum offices. Shyam did not respond to calls and emails seeking comment.

Cantor upheld its contractual obligations and was transparent with its lenders, while the loans were audited and independently reviewed multiple times over the years, said the Cantor attorney Brandon Tran, who also represents Stupin and Marcil.

The pair are passive investors in Cantor and held no operational roles, he added. Cantor in legal filings has disputed that the Western Alliance loan is in default.

In a statement, Marcil said he had invested in several of Continuum's properties. He denied wrongdoing and said that he was a victim.

Spokespeople for Zions and Western Alliance did not respond to requests for comment.

(Reporting by Douglas Gillison and Chris Prentice; Editing by Michelle Price)