Their names invoke bubbling brooks and tropical islands, but now a host of obscure hedge funds may be bringing Wellington Management Co some unwanted attention.

The secretive Boston money manager is one of more than 20 firms, mainly hedge fund managers, that have gotten subpoenas or inquiries from federal prosecutors looking into allegations of criminal insider trading and misuse of confidential corporate information.

The probe has put a spotlight on the world of ultra-competitive stock research. Fund managers being questioned paid so-called expert networks to connect them with corporate executives for in-depth briefings that may have veered into disclosures of non-public, market moving data.

So far, prosecutors have only charged people who worked for or consulted for the expert networks, not their clients, the investment managers. On Thursday, prosecutors arrested four people for passing on alleged confidential information about companies like Apple Inc and Advanced Micro Devices


Wellington, which manages almost $600 billion, says it has been told it is not a target of the investigation.

The firm was drawn into the investigation after five employees received an email in late October from an expert they worked with, independent technology analyst John Kinnucan, that mentioned the federal probe. At least one of the five, Michael Carmen, manages both mutual fund and hedge fund assets.

In the email, Kinnucan warned the five at Wellington along with dozens of his other clients that the FBI wanted to enlist him as a cooperating witness in an insider trading probe.

A Wellington spokeswoman said it would not give more detail or make executives available to be interviewed.


But securities filings by Wellington and one of its fund partners paint a much deeper picture of the firm's involvement with hedge funds, that carry names like Placer Creek Partners and Serrano Island Partners, and the tensions that can crop up between these funds and Wellington's traditional areas.

In all, Wellington's affiliated hedge funds manage at least $10.3 billion, according to its most recent form ADV filed to the U.S. Securities and Exchange Commission and filings by the affiliated funds. While uncommon for a mutual fund firm, competitors including BlackRock Inc and Affiliated Managers Group also run hedge funds.

Still, its $10.3 billion total would put Wellington among the 30 largest hedge funds, just ahead of Tudor Investment Corp, according to a March tally by

While just a fraction of assets under management, hedge funds are far more profitable than mutual funds. And that can lead to tensions within firms, said Eric Weber, managing director of Freeman & Co, a New York investment bank focused on financial services.

For one thing, both mutual fund clients and employees might start to wonder if they are the company's main priority. You may get a lot of questions, he said.

Wellington's hedge fund business has drawn questions from regulators before. It faced an SEC investigation in 2004 on whether it favored the more profitable hedge funds when deciding how to allocate hot stocks. Wellington spokeswoman Sara Lou Sherman said the agency closed the probe without action. The SEC declined to comment.

A filing by funds of the Hartford Financial Services Group , including some sub-advised by Wellington, acknowledges the tensions the firm could face, such as the possibility a hedge fund is shorting a stock that the mutual fund is buying.

Conflicts could also arise because Wellington earns performance fees -- a share of profits -- on hedge funds that it does not collect on mutual funds, the filing said.

The incentives associated with any given account may be significantly higher or lower than those associated with other accounts managed by a given investment professional, the filing stated. Wellington has policies covering such potential conflicts, overseen by senior executives, the filing said.


Wellington's leaders might be overseeing themselves. Along with Carmen, another person a filing by The Hartford mentions as running a hedge fund is Saul Pannell, who Wellington also lists among its executive committee members.

Also, Wellington's three managing partners -- including Chief Executive Perry Traquina -- are frequently listed in other filings as executive officers of Wellington hedge funds.

These funds often identify their general partner as Wellington Hedge Management LLC. Many require minimum investments of $1 million or more.

The use of expert networks has become quite common among diversified investment managers like Wellington, according to Daniel Wiener, who runs Adviser Investments in Newton, Mass., and invests partly in Wellington-run mutual funds.

I don't think you have to be a hedge fund to want good information, Wiener said, adding he saw no sign of wrongdoing by Wellington.

Wellington's Carmen and another fund manager, Stephen Mortimer, were among the recipients of the email from Kinnucan, according to two people who have seen the email.

In addition to Carmen's hedge fund work, they co-manage the $1.8 billion Hartford Growth Opportunities mutual fund, which Wellington sub-advises. Hartford referred questions to Wellington.

(Reporting by Ross Kerber; Editing by Aaron Pressman and Tim Dobbyn)