Subpoena Frenzy

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New York – Attorneys from the US Department of Justice have reportedly issued dozens of additional subpoenas in connection with the insider trading investigation.  One report, from Charles Gasparino of Fox Business, cites 50 or more subpoenas and we have heard rumors of 80 or more.  Sources close to the investigation have raised expectations in the media that arrests are imminent, reportedly before the Christmas holiday.

Reports suggest that the common thread to the subpoenas is information surrounding corporate actions.  According to Fox News, “Sources close to the investigation say that, so far, the Justice Department has asked for company information and communications surrounding major events, such as mergers, acquisitions and major corporate announcements.”  Early reports had indicated that investigators are keying on leaked information about a handful of technology and healthcare mergers.

The flurry of subpoenas has raised anxiety levels among institutional investors, even though most of the firms receiving subpoenas have received assurances from investigators that the firms are not under investigation.  The anxiety has reached panic levels at some firms.  For example, we have heard of firms that classify all third party research as expert networks. Misunderstanding about expert networks appears to be widespread.  (Integrity Research defines an expert network as firms that arrange direct ad hoc access to third party experts which are not employees of that firm.)

Separately, the Wall Street Journal reported that the SEC issued subpoenas to more than 30 firms a year ago seeking information  related to Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009 and MedImmune Inc.’s takeover by AstraZeneca PLC in 2007.  Reportedly, Ziff Brothers, Jana Partners LLC, TPG-Axon Capital Management, Prudential Financial Inc.’s Jennison Associates asset-management unit, UBS AG’s UBS Financial Services Inc. unit, and Deutsche Bank AG received requests from the SEC.

We have compiled a list of eleven firms that have reportedly received subpoenas in connection with the most recent insider trading investigation.  Note that many if not most have received assurances that they are not under investigation.  Also note that some firms, such as Millenium Management and Maverick Capital were erroneously cited (by Gasparino) as having received subpoenas.  Similarly Reuters has run lists of Broadband Research clients, such as Coatue Management, Sonar Capital, Manatuck Hill Capital, even though it is not clear that these firms have received subpoenas.

Reuters ran an article claiming that Boston was a major hub in the insider trading investigation.  We have included the locations of the firms receiving subpoenas, and there is little evidence that investigators are concentrating on Boston-based firms.  If subpoenas are as widespread as some have suggested, asset managers in many cities will be impacted.

Hedge Fund Sponsors:

Balyasny Asset Management LP, Chicago IL

Citadel Investment Group LLC, Chicago IL

Diamondback Capital Management LLC, Stamford CT

Level Global Investors LP, Greenwich CT

Loch Capital Management LLC, Boston MA

SAC Capital Advisors LP, Stamford CT

Other Investment Managers:

Janus Capital Group Inc., Denver CO

J&W Seligman & Co., New York NY

Wellington Management LP, Boston MA

Others:

Credit Suisse Group AG, New York NY

Broadband Research, Portland OR

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