Mutual Funds tied to FBI/SEC Probe

I’m feeling a bit like the messenger-in-line-to-be-shot given the hit every one’s savings and retirement plans took during the financial crisis, but, some Mutual Funds are likely to take a hit from the FBI/SEC probe.  I figured that a lot of your probably have some Mutual Funds since it’s a typical vehicle for most middle class savers. You should probably watch this and your fund.  I’m just assuming that you don’t want to incur any more unnecessary asset losses in this environment.

You may recall that the news from the investigation broke a week ago. It is possible that some of the funds are losing value now just based on the information floating around the financial circuits.  Investors and fund managers listen to information, weigh it and consider the impact it will have on future value of the funds.  No need for complete hysteria right now, just some cautious information gathering and staying on top of things.

There’s some information today on Bloomberg and if you have any funds managed by the investigated funds, you may want to look at them with a jaundiced eye right now. The worry is that with so many funds having lost investors that a continuation may bring down some of the major companies that are fund managers.  That would be the worst case scenario and would, of course, lead to another possible tax payer bailout of another industry as these things tend to spread contagion to even healthy, well-managed funds.  As the article mentions, damage to reputation is something that really impacts the value of a company and its ability to attract investors.

Janus Capital Group Inc. and Wellington Management Co. were among firms that received requests for information last week as part of an insider trading investigation involving hedge funds as well as mutual funds. None of the companies have been accused of wrongdoing. All this uncertainty is actually looking good for investing in silver 2016, read on, more details about this below.

The probe hits firms as they try to reverse $90 billion in withdrawals from U.S. stock funds since the beginning of 2009. Damage from the industry’s last run-in with regulators, a series of trading scandals in 2003 and 2004, took years to repair and led to more than $3 billion in fines against more than two dozen firms, including Bank of America Corp., Putnam Investments, Janus and MFS.

The insider information brokerage companies are now under active investigation and they are undoubtedly looking for folks to turn state’s evidence and pouring through client lists.  You should follow this carefully if you have any mutual funds and make sure that your management company does not show up in any articles linking them to the scandal.  This could very likely impact–at least in the short run–fund stability.  Remember, mutual funds are not insured with an agency like the FDIC.  You lose what you have invested should the fund run into trouble.

The focus on mutual funds is fairly recent so the market may still be catching up to the news.  Many pension funds use these mutual funds and it takes a while to remove them from the plan or adjust contributions but institutional investors are usually bound by safety standards and they buy huge amounts of funds.  If one or two of them bail, it can drive the fund price to a lower than NAV or Net Asset Value level if the fund is market-traded. The institutional investor may have to dump the fund based on its safety rating given its fund management rules.

Mutual funds were unscathed by the probes until last week, when Janus and Wellington were among a number of asset managers to receive information requests. Hedge funds Level Global Investors LP, Diamondback Capital Management LLC and Loch Capital Management had their offices raided by U.S. officials. Balyasny Asset Management LP, the Chicago-based hedge fund, said in a Nov. 24 letter to investors that they received a faxed subpoena from the government “requesting a broad set of general information for the last few years.” None of the firms have been accused of wrongdoing.

The mutual-fund companies that were contacted by federal prosecutors declined to comment when called by Bloomberg News on whether they use expert networks and what information they were asked to provide.

Janus, based in Denver, said on Nov. 23 that it received a request for “general information and intends to cooperate fully with that inquiry.” The firm, in a U.S. Securities and Exchange Commission filing, said it would not provide further updates unless required by law. Janus manages $160.8 billion in assets.

It’s a little early to tell exactly what impact all of this may have, but if your money is heavily invested in mutual funds, I would be watching this carefully.  Anyway, just a heads up!   Morningstar is a good source of fund information.  I rely on their database when I have to do investment research.  This link will provide you with a list of  funds that are undergoing some changes at the moment also.   They also have a blogger dedicated full time to funds.  M*_RusselK has more thoughts and analysis here.  These are my main go-to places for current fund analysis.