Administration April 10, 2005

Putnam Call-Center Rep Says Market-Timing Warnings Were Ignored

October 28, 2003 (PLANSPONSOR.com) - Recent investigations by Massachusetts state regulators into Putnam Investments mutual fund market timing were spurred by a call-center employee, after his complaints to the company and the US Securities and Exchange Commission (SEC) were ignored.

Reported by

Eric Hazard

Peter Scannell contends he noticed irregular activity in customer mutual fund accounts from 2001 until earlier this year. At the time, Scannell believed the heavy customer trading was designed to reap short-term profits and he was spurred into action by his belief that the trading was hurting other Putnam investors, according to a Wall Street Journal report.

“I’ve worked at a casino,” Scannell , a former maitre d’ at a Lake Tahoe casino resort told the Journal. “I know a racket when I see it.”

However, when Scannell brought these irregularities to Putnam’s attention, he was ignored and was later assaulted in an incident that he says was connected to his attempts to stop the trading, leading to a disability leave from Putnam. Then in March, says he Scannell scheduled a meeting with the SEC in Boston that also led nowhere.

Finally, Scannell said, Massachusetts regulators moved to subpoena Putnam records after he provided detailed trading accounts to them in September. Now Scannell has now emerged as an important source of evidence supporting charges that the state expects to bring Tuesday against Putnam (See Union K Plan Trading Activity Leads to Putnam Fund Probe ). “Peter Scannell showed tremendous courage in providing information to this office,” said Matthew Nestor, director of the Massachusetts Securities Division. “This case would not have started without him. The information he provided us has proved to be accurate and we certainly appreciate his help.”

Investing Irregularities

Putnam retirement fund customers made thousands of trades in and out of Putnam international funds through the call center, Scannell told regulators. Normally, the unusual activity would begin between 3 pm and 4 pm Eastern time, the end of regular market trading, when orders would pour in.

This technique – practiced between July 2000 and January 2003, involved 10 participants in a union 401(k) plan, Scannell said. During the time, the participants made 5,340 trades involving $657 million of shares. By estimates compiled by Scannell, the total gains added up to $2 million.