Most papers are silent on the FBI's probe into hedge funds and insider on Monday. Yet on Saturday, the Wall Street Journal published a follow-up article based on excerpts from SAC Capital's letter to its limited partners. It seems that the client letter hints of the SEC's possible interest in the use of soft dollars combined with expert networks. Interestingly, a pair of articles initially excerpted the client letter last week, though no publication has published its entire contents since (does no media outlet have the actual letter?).

Separately, Bloomberg adds a few more names to the roster of mutual fund firms that hired John Kinnucan's Broadband Research. Kinnucan himself dropped the two new client names -- Affiliated Managers' Friess Associates (advisor to the Brandywine Funds) and Ameriprise's Columbia Management. Spokespeople from both firms did not talk to Bloomberg and the paper did not elaborate on the issue. All counted, Kinnucan had roughly 20 clients according to initial reports in the Wall Street Journal.

Bloomberg adds that Vanguard Group subadvisor Wellington Management did not receive a visit from the FBI. That info is based on a "person familiar with the matter." A second source told the news service that Wellington officials are reviewing their records and that the firm did not engage in illegal trading.

The Bloomberg report further points out that frequent mention of mutual funds in the probe risks undermining flows to equity funds just at the point where they were again turning positive. To give a sense of the possibility the reporter rehashes the old scandal news from 2003 and the Spitzer days.

"There was reputational damage from that scandal that took a long time to heal. In an industry that handles people's money and savings, reputation is enormously important," is the timely and timeless quote from Burt Greenwald (the Philadelphia-based mutual fund consultant) that the reporter selected to run with.

Chuck Jaffe writes in his column that the "insider-trading 'scandal' isn't so scandalous." Though he does lead by mentioning that "three big mutual funds mentioned prominently." Those would be Janus Capital, Wellington Management and MFS Investments. Jaffe does not drop the actual names until paragraph 10.

Jaffe has two points: that mutual fund investors will likely be little effected by the slow-folding scandal and that they should be surprised only three mutual fund families names have been mentioned. And, to stress a third point, none of the reports suggest that the three mutual fund firms did anything wrong and so far it looks like they may have just had the wrong vendor at the wrong time (John Kinnucan).

Jaffe's conclusion may surprise as he suggest that mutual fund investors can use the probe's revelations to find mutual fund managers that suit their style:

Meanwhile, investors who insist that their fund try to beat the market in every time period, especially the shortest time frames, should want managers who use every available trick in the book to make magic. Regulators may take expert networks out of the trick book, but investors should not let the headlines or the hint of trouble push them out of any funds yet

Did the FBI tack a picture of SAC Capital's Steve Cohen to its bulletin board and write "get this guy!" That is the speculation of BusinessInsider.com. Henry Blodgett's publication (yes, that Blodgett from 2003 and Merrill Lynch) puts the puzzle pieces of the probe together and its conclusion is that the Feds are after Cohen. Call it the mosaic theory of reporting. 

Edited by: Sean Hanna, Editor in Chief


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