Obervers say the advisory industry is spooked by the probes of Diamondback Capital and Level Global Investors. But the bigger concern may be the subpoena of Wellington Management, which is a subadviser to marquee firms like Vanguard, The Hartford, and John Hancock.
The Vanguard Group Inc. is trying to allay investor concerns about the news that one of its subadvisers, Wellington Management Inc., has been subpoenaed by federal authorities in connection with an insider-trading probe.
Meanwhile, The Hartford Financial Services Group Inc., and John Hancock Funds LLC — both which have billions of dollars with Wellington — are keeping a close eye on the situation.
On Saturday, The Wall Street Journal reported that the Securities and Exchange Commission, the FBI and the New York Attorney General's Office are conducting criminal and civil probes into possible insider trading at a number of companies. Specifically, investigators are looking at whether traders at various financial services firms received non-public information from expert networks and third-party research firms.
On Monday, the FBI agents raided the Connecticut offices of hedge funds Diamondback Capital Management LLC and Level Global Investors LP as part of the investigation.
Wellington, Janus Capital Group Inc. and hedge fund SAC Capital Advisors LP have received subpoenas connected to the investigation.
Don Chu, a consultant with Primary Global Research LLC, a Mountainview, Calif.-based expert research network, was arrested on Wednesday morning on insider-trading charges.
Everyone in the industry is incredibly nervous about the insider-trading probe, observers said.
Specifically, firms and their lawyers, are scrambling to figure out what the investigation focuses on and if the definition of “insider trading” might change as a result of the probe, said Russel Kinnel, research director at Morningstar Inc.
“In the past, insider-trading cases were clearly insider trading, but this seems like it's going in a different direction,” he said.
In a filing yesterday with the Securities and Exchange Commission, Janus Capital Group Inc. said it “has received an inquiry regarding the recently disclosed insider trading investigation on Wall Street calling for general information and intends to cooperate fully with that inquiry. Janus does not intend to provide any further updates concerning this matter unless and until required by applicable law.”
Sara Sherman, a spokeswoman for Wellington, declined to comment.
Wellington manages 19 funds and $175 billion in assets for Vanguard.
Vanguard has received “a handful of client inquiries,” spokesman John Woerth wrote in an e-mail. To address client concerns, Vanguard is clarifying that a subpoena doesn't mean that Wellington did anything wrong, he wrote.
Further, Vanguard is emphasizing its “rigorous oversight process of our external advisers, which are subject to several levels of controls and regulation to protect the interests of Vanguard shareholders,” Mr. Woerth wrote.
For now, Vanguard is standing by Wellington.
“Vanguard has a long-standing relationship with Wellington and remains fully confident in and committed to that relationship and the investment advisory services provided by the firm on behalf of our clients,” Mr. Woerth wrote.
Wellington also oversees $71 billion in assets for The Hartford.
“While we are following this matter closely, we remain committed to our relationship and the investment services Wellington Management provides our clients,” according to an e-mailed statement from the insurer.
John Hancock Funds, which has $7.8 billion in assets with Wellington, is staying in close contact with the subadviser on this issue, its president, Keith Hartstein, wrote in an e-mail.
“As you would expect, we have been in close contact with Wellington,” he said.
