Wellington probed by Feds in insider trading investigation

[W2R]

I don't know if many are following the threads on this at the Bogleheads forum. Apparently the feds are investigating Wellington Management, which manages the Vanguard Wellington and Wellesley funds among others. Major investment firms subpoenaed in insider trading probe - latimes.com

Consensus on the Bogleheads board seems to be that there is no reason to panic and sell, but that one should keep an eye on this situation.

It seems to me that if Wellington is eventually found guilty of insider trading, share prices of Wellesley could drop. A lot of our members have substantial holdings in Wellesley so the current investigation might be a good topic for discussion.

 

[ziggy29]

I don't see why share prices of a mutual fund would be greatly affected unless there is so much selling of this fund that it puts pressure on the securities it owns.

 

[W2R]

I don't see why share prices of a mutual fund would be greatly affected unless there is so much selling of this fund that it puts pressure on the securities it owns.

Good point, although it is hard to imagine that Wellington might not pass on some of their losses in increased fees. Maybe they really can't. And also, as you pointed out, there could be a lot of selling of the fund. It seems to me that some mutual funds and/or mutual fund management companies got caught up in the Enron debacle though my memory of this is hazy. Of course that was a different situation.

Also, I am thinking that if Wellington fails, Vanguard would just get someone else to manage these funds.

 

[chinaco]

There have been some arrests at some firms

The Associated Press: Big New York insider trading probe spawns another



The Insider-Trading Investigation: A Primer


http://online.wsj.com/article/SB100...l#project=INSIDER1011&articleTabs=interactive

 

[REWahoo]

W2R, you sure know how to get my attention. I have 60% of my nest egg in Vanguard Wellesley and Wellington Funds.

I'm hoping the news that Wellington Management "...received requests for documents from federal investigators looking into insider trading" is nothing more than a fishing expedition by the Feds. That may be the case if we can believe news reports that Wellington, Janus and SAC were asked for info while several hedge funds apparently had the FBI show up with search warrants.

But then there is this troubling comment:

“This is going to go beyond hedge funds,” said Stewart Massey, chief investment officer at Massey, Quick & Co. in Morristown, New Jersey, which manages $2 billion on behalf of endowments, foundations and wealthy families. “This is going to involve traditional money managers also.”

I have no idea how this might impact the value of funds managed by Wellington. My worst fear is we learn the true meaning of Unclemick's "pssst -Wellesley" is that's the sound we hear as the air goes out of the share price.

 

[easysurfer]

I have Wellington for my HSA. So the sound I might hear would be Pssst..Code Blue...Wellington

 

[DblDoc]

Adds a whole new meaning to "Psst Wellesley"

DD

 

[73ss454]

This is nuts! Between this info and Pen Fed sending a members money to the state I think we will have to start thinking Mattress Money at some point.

Maybe Dex had some inside info going to all cash.

 

[clifp]

This is nuts! Between this info and Pen Fed sending a members money to the state I think we will have to start thinking Mattress Money at some point.

Maybe Dex had some inside info going to all cash.

LOL I was thinking the same thought, the only thing missing is that Buffett is actually being running a Ponzi scheme all of these years.

Remember to buy guns, ammo,and MREs with some of your mattress money.

 

[Gone4Good]

Maybe Dex had some inside info going to all cash.

Unless it's all at PenFed.

 

[Gone4Good]

I have no idea how this might impact the value of funds managed by Wellington.

I see no reason why it should. The NAV is based on the value of the assets it holds, not any promise or obligation from Wellington. There is possibly some liquidity risk in the portfolio if a bunch of folks start heading for the exits. But the most likely downside risk is that Wellington sells its book of business to someone else who [-]hasn't gotten caught cheating yet[/-] doesn't cheat.

 

[Dawg52]

My worst fear is we learn the true meaning of Unclemick's "pssst -Wellesley" is that's the sound we hear as the air goes out of the share price.

He's been trying to warn you for years. What do you thing he meant by 'pssst Wellesley'? Plus he sold his years ago.

 

[W2R]

W2R, you sure know how to get my attention. I have 60% of my nest egg in Vanguard Wellesley and Wellington Funds.

Yes, so many of us have a great deal in Wellesley and Wellington and that is why this information got my attention, too. I have 31% in Wellesley (it's supposed to be 30% according to plan). My plan doesn't allow more than 30% in anything due to concerns about having too many eggs in one basket. On the other hand, I'd hate to risk that 30% (and the great income I have been getting from it).

There are two threads on this on the Bogleheads board, where most seem to agree with Ziggy29 and Gone4Good:

I see no reason why it should. The NAV is based on the value of the assets it holds, not any promise or obligation from Wellington. There is possibly some liquidity risk in the portfolio if a bunch of folks start heading for the exits. But the most likely downside risk is that Wellington sells its book of business to someone else who hasn't gotten caught cheating yet doesn't cheat.

Still, I thought it might be a good idea to keep an eye on the situation. Each financial disaster that occurs seems to be something that never happened before quite that way, if you know what I mean. So while I am not running off and selling Wellesley shares, I am feeling cautious and want to stay informed.

 

[HFWR]

Unless it's all at PenFed.

Or the Fed Pen...

 

[samclem]

This does point up one difference between a "conventional" MF and a closed-end fund or an ETF. The later two could suffer a significant drop in value, at least in the short term, if the management has been caught in a scandal. The share price of a traditional MF is based strictly on the value of the underlying assets.

 

[NW-Bound]

The share price of a traditional MF is based strictly on the value of the underlying assets.

Yes. Assuming that there is really any asset.








Just kidding to scare y'all.

 

[FIRE'd@51]

This does point up one difference between a "conventional" MF and a closed-end fund or an ETF. The later two could suffer a significant drop in value, at least in the short term, if the management has been caught in a scandal. The share price of a traditional MF is based strictly on the value of the underlying assets.

While this may be true for an actively managed closed-end fund, I would think the market would quickly arbitrage away any significant difference from NAV of an ETF.

 

[Gone4Good]

This does point up one difference between a "conventional" MF and a closed-end fund or an ETF. The later two could suffer a significant drop in value, at least in the short term, if the management has been caught in a scandal. The share price of a traditional MF is based strictly on the value of the underlying assets.

Forget ETFs, remember ETNs . . . Exchange Traded Notes. Those were the great innovation where a bank would issue a bond and bundle it with futures contracts to create a funded security that behaved like the futures contracts. The only small problem was if the issuing bank went under all the investor owned was a senior unsecured bond of the defaulting bank and a futures contract, which may or may not be in the money. Oops.

Imagine thinking you had invested in the S&P 500 or a portfolio of commodities only to learn that it was mostly just a loan to Lehman.

 

[teejayevans]

The worst that could happen is that holders of the W. funds would have to pay a fine because they benefited from insider trading. Since the both funds have rather stable holdings, I'm guessing any perceived benefit would be low. I would be interesting to see if the holdings have change in the last 5 years and the "timing" of those changes. BTW, Wellington does a lot more than just Vanguard funds, so those funds may not be effected at all.
BTW, its too late to sell, the feds will look at the effected period to assess any fines.
TJ

 

[target2019]

Wellington isn't the target of the investigation as best I can tell. Should the thread title be changed?

 

[W2R]

Wellington isn't the target of the investigation as best I can tell. Should the thread title be changed?

How's that? I have to admit that I would hate to be them, if they knowingly benefited from insider trading. Here's a relevant link:

Feds Now Targeting Big Fund Companies

 

[Lusitan]

Apparently the feds are investigating Wellington Management, which manages the Vanguard Wellington and Wellesley funds among others.

Surprising news, for sure. I hope it does not negatively affect shareholders in any serious way. But I will withhold judgment until Uncle Mick weighs-in on this one, for obvious reasons.

 

[devans0]

I had always thought it was suspicious that any stock buy that I made was always at the highest for the day and any sell was at the lowest until I learned about the "daily special" terms that big traders could garner.
Insider trading has always been a "tax" on the system, now there is software that can pinpoint illegal activity. Just ask Martha Stewart.

 

[TeeRuh]

Having just finished The Big Short its not like I have a lot of trust/faith in any financial institutions.

Or as they said in "Airplane"; I picked a bad time to give up smoking/drinking!

t.r.

 

[mark500]

I think the chances of any mutual fund investor losing money from a Vanguard fund managed by Wellington are so remote that its silly to worry about it, even if Wellington management did something illegal.
This thread borders on financial porn.
Also, this is not the first time:

S.E.C. Mutual Fund Inquiry Widens to Include Wellington - New York Times

That was 2004.

Now if I had money invested somehow with Wellington Management Company, LLP, that would be a different matter.