Citing unnamed sources, the Wall Street Journal reported that Harvard Business School Professor Peter Tufano may come back with a figure of as much as $100 million for damages suffered by Putnam’s trading practices. Tufano was hired to determine that damage figure. This could have serious implications for the company, which would have to pay an additional $75 million in fines beyond what it has already paid, the paper reported.
Putnam has already paid $110 million in fines to regulators, but agreed in its settlement to abide by Tufano’s figures, opening it up to further restitution payments (See Details Emerge About Putnam Settlement ). In its settlement, Putnam admitted that the damages totaled between $7 million and $10 million.
Tufano’s job included looking at transactions in Putnam mutual funds over a period of six years, according to the unnamed sources. The losses, they claim, have come from three sources:
- Trading in Putnam’s 401(k) and other retirement and college savings plans that cost investors $46 million
- Putnam employees market timing their funds, costing shareholders between $3 million and $6 million from January 1997 to December 2003
- Tufano also reportedly estimates that the massive withdrawal of funds following the disclosure of such practices shortchanged investors by $53 million in transaction costs due to the need to sell billions of dollars in securities to provide redeeming shareholders with money.
Putnam investors pulled out $94 billion in the four quarters before September 30, 2004. Putnam now manages $204 billion in assets.
Massachusetts Secretary of the Commonwealth William Galvin confirmed the $100 million estimate but refused to discuss details, according to the Journal. Others involved in the process refused comment as well, most opting to wait until the official figures are released.
If the $100 million figure does ultimately stand up, Putnam will once likely once again find itself embroiled in turmoil. Putnam was particularly hard hit by the market timing scandal of 2003, in which over $3 billion in fines have been paid to date by numerous mutual fund companies.
In addition to market timing, federal and state regulators also have been examining late trading and certain sales practices as part of a wide-ranging fund industry probe.
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