Scope of Putnam scam grows, nears $100M
Regulators say market timing scandal originally cost $10M, additional penalties may need to be paid.
February 2, 2005: 1:52 PM EST
BOSTON (Reuters) - A trading scandal at Putnam Investments may have cost clients about $100 million, or 10 times as much as the mutual fund company initially estimated, Massachusetts' top securities regulator said Wednesday.
As part of a $110 million settlement in April, Putnam agreed that an independent consultant would determine how much the improper trades by its employees cost investors.
The company may face additional payments to investors if improper market timing cost investors more than the $10 million in restitution it agreed to pay investors in the settlement with Massachusetts and the Securities and Exchange Commission.
"An independent consultant is probing the matter and it appears that the number is in the $100 million range," said Brian McNiff, a spokesman for Secretary of the Commonwealth William Galvin, Massachusetts' top securities regulator.
Boston-based Putnam, the eight-largest U.S. fund company, was the first high-profile firm to be charged with securities fraud by Galvin's office in 2003 when it became clear that Putnam executives failed to enforce in-house trading rules.
A handful of former portfolio managers and about three dozen other employees engaged in market timing -- the fast-paced buying and selling of shares -- in Putnam's funds.
Putnam, the money management unit of insurance broker Marsh & McLennan Cos., discouraged market-timing because it can hurt long-term fund investors by eroding a fund's value.
The scandal quickly engulfed many of the best-known mutual fund firms. Industry analysts, however, have insisted that costs to investors were minimal.
Galvin's office appointed a consultant, Harvard Business School professor Peter Tufano, who is a well-respected mutual fund industry expert.
Putnam said it cannot comment on the figure because Tufano has not finished his work.
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