Wellington Faces Probe on Trading
Wellington Management Co., one of the biggest U.S. money managers and an advisor to a number of Vanguard Group mutual funds, said Wednesday that federal regulators were investigating it, though not for the type of improper trading that has rocked the fund industry since September.
A source said the probe focused on how the Boston-based company allocated initial public offerings and trades of large stock blocks among clients.
“We were informed by the Securities and Exchange Commission several months ago that it had initiated an investigation related to our trading practices and procedures. We do not believe this inquiry has anything to do with market timing or late trading,” Wellington spokeswoman Lisa Finkel said.
Wellington, which manages $415 billion in all and advises more than a dozen funds for Vanguard, the second-biggest U.S. fund firm, began to tell clients and potential clients about the matter earlier in the year, people familiar with the matter said.
The news first appeared in the New York Times.
Vanguard has been untainted by regulators’ broad investigation of the fund industry for improper trading of fund shares, such as market-timing trades permitted for favored clients.
The SEC and state regulators also have recently begun to examine how money managers that run both hedge and mutual funds divide up stock trades and whether they tell clients about those decisions.
Regulators have long worried that conflicts could arise and that some clients got better treatment because managers tended to earn much more for running hedge funds -- private pools for wealthy investors -- than retail mutual funds.
Lori Richards, an SEC director of compliance, said recently that SEC examiners would look at whether advisors “have controls to ensure that [stock] allocations are fair among all clients and consistent with disclosures.”
An SEC spokesman declined to comment further.
A Vanguard spokesman said the company was aware of the investigation at Wellington. “To date, we are not aware of any specific link between the inquiry and Wellington’s management of Vanguard funds,” he said.
