Federal regulators have accused six former executives of Putnam Fiduciary Trust Co., the transfer agent for a big mutual fund company, of defrauding several funds and a 401(k) plan client of some $4 million in 2001.
The Securities and Exchange Commission on Tuesday announced the civil lawsuit against the six individuals, filed Friday in federal court in Boston, where mutual-fund company Putnam Investments is based. The SEC did not act against Putnam Fiduciary Trust itself, saying that the transfer agent cooperated swiftly and thoroughly in the agency's investigation, fired some of the people responsible and compensated the affected clients.
In January 2001, the SEC said in its suit, Putnam Fiduciary Trust was a day late investing certain assets of the 401(k) retirement plan of pharmaceutical distributor Cardinal Health Inc. _ causing the plan to miss out on some $4 million in market gains. Instead of telling Cardinal Health about the delay, the former executives used deceptive and illegal trades to shift about $3 million in costs from the delay to shareholders of several Putnam mutual funds and stuck Cardinal Health's plan with an undisclosed $1 million loss, the agency alleged.
Transfer agents such as Putnam Fiduciary are responsible for transferring securities from sellers to buyers and maintaining records of the transactions.
Because it was covered up, the scheme was not discovered until January 2004, according to the SEC.
The SEC is seeking injunctions and unspecified civil fines against the six former executives: Karnig Durgarian Jr., a former managing director and chief of operations at Putnam Fiduciary Trust, and principal executive officer of certain Putnam mutual funds; Donald McCracken, who was a managing director and head of global operations services at Putnam Fiduciary Trust; Virginia Papa, also a former managing director and the director of defined contribution servicing; Sandra Childs, a managing director who was responsible for the transfer agent's compliance department; Kevin Crain, a managing director who was responsible for its plan administration unit, and Ronald Hogan, a former vice president with responsibility for new business.
John Sten, an attorney representing Childs, declined comment on the SEC suit. Lawyers for the other former executives didn't immediately return telephone calls seeking comment.
Putnam Investments, the nation's seventh-largest mutual fund company, is a unit of financial conglomerate Marsh & McLennan Cos. Inc. Putnam was the first investment firm formally accused of wrongdoing in the industrywide scandal over improper trading of mutual funds, which broke in September 2003.
Putnam agreed in April 2004 to pay $110 million to settle allegations by federal and Massachusetts regulators of allowing improper market timing _ rapid in-and-out trades _ by favored clients to the detriment of long-term shareholders. In March 2005, Putnam agreed to pay an additional $83.5 million to current and former fund shareholders to resolve the allegations.
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