Hedge funds and mutual funds get subpoenas

Date: Wednesday, November 24, 2010
Author: Svea Herbst-Bayliss and Ross Kerber, Reuters

Hedge fund SAC Capital Advisors and mutual fund firm Janus Capital Inc said on Tuesday they were among money managers asked to provide documents to U.S. securities regulators as part of a widening probe by federal authorities into insider trading on Wall Street.

SAC, the $12 billion Greenwich, Connecticut, firm run by Steven A. Cohen, told investors in a letter on Tuesday that it and many other firms had received the requests for information from the Securities and Exchange Commission. A spokesman for the firm declined to comment.

Janus, which oversees $161 billion and is located in Denver, said it received an inquiry for general information and it intends to cooperate fully.

Trading in Janus' stock was briefly halted after the company released its statement.

Bloomberg News reported that Boston-based Wellington Management with $598 billion also received a request. The firm declined to comment.

Chicago-based hedge fund Citadel declined to comment on whether it received a request for information.

People familiar with the requests said they were broad in nature. The investigation, according to lawyers and other familiar with the situation, is looking into allegations that hedge funds traded on nonpublic information about corporate buyouts and tips from industry consultants.

No one at any of the firms receiving the requests for information from the SEC has been accused of wrongdoing.

A spokesman for the SEC declined to comment.

But the news further rattled nerves on Wall Street and came a day after federal agents raided three hedge funds and carted away boxes of documents.

Indeed, jittery investors have been placing calls to prominent hedge funds across the country asking whether they too had received any subpoenas and asking managers to update them by email if anything should arrive in the mail.

What investors have not done so far is pull money out broadly, but this might be a next step if people become sufficiently worried that the investigation will reach into the highest echelons of the $1.7 trillion hedge fund industry.

"This probe is creating a high level of nervousness," said Stewart Massey, who invests with hedge funds at Massey, Quick & Co. "People want as much information as they can get and they want but at the moment this is not affecting hedge fund industry flows."

Trading firm First New York Securities, meanwhile, recently told employees in an email that it had conducted an internal review after receiving a subpoena from the SEC last year. It said it discovered no evidence of wrongdoing.

On Monday, the Federal Bureau of Investigation entered the offices of Diamondback Capital Management, which had gotten a subpoena some time ago, and of Level Global Investors. Both were launched by alumni of Cohen's fund.

The other fund searched was Loch Capital Management in Boston, where the managers had been friendly with a person charged in last year's big Galleon Management insider trading case.

Investors familiar with these funds have said people who had money with them were now asking for it back.