Putnam: Employees Ran Afoul of Plan Expense Policies

April 5, 2004 (PLANSPONSOR.com) - Employees of the scandal-plagued Putnam Investments violated the firm's policies through "the payment of Putnam corporate expenses" involving Putnam-administered retirement plans, several Putnam funds disclosed in shareholder reports.

According to the reports, which eight Putnam funds filed with the U.S. Securities and Exchange Commission (SEC), the employees carried out the “willful circumvention” of fund policies and procedures during 2002 and in connection with 401(k) plans administered by Putnam Fiduciary Trust Co., Dow Jones reported.

A Putnam spokeswoman declined to discuss with Dow Jones exactly what the expense payments covered, including the amounts of money involved or how the employees violated company policies.

Putnam spokeswoman Laura McNamara said “junior or midlevel employees” violated the company’s policies on corporate expense payments. She said she didn’t know how many people were involved or if they are still with the company. The filings didn’t name any employees involved. McNamara said the corporate-expense violations have been “fully corrected.”

Putnam said the violations of company policies “raise concerns” about the funds’ internal controls, which already have been under scrutiny as a result of federal and state investigations into market-timing, late trading and other mutual-fund trading issues.

The Putnam funds said they believe their internal controls remain “generally effective,” despite the fact that some employees engaged in “willful circumvention” of those controls. The funds said they are still reviewing their internal controls.

According to the filings, Putnam executives learned at the beginning of 2004 that the improper expense payments involved a Putnam fund. Putnam said it has notified the SEC, the funds’ trustees and Putnam’s independent auditors about the policy violations and paid restitution to the funds involved.

Putnam identified the payments as one of two problematic issues involving 401(k) plans administered by Putnam Fiduciary Trust. The other matter, which has already been reported, involved two senior executives failing to inform a retirement plan about “operational errors” that led to losses in five Putnam funds. The two executives have since left Putnam.

Putnam has been a ley target of the ongoing fund industry probe. Among other topics,  Massachusetts regulators also are investigating whether Putnam defrauded investors by improperly paying rebates to favored retirement plans at the expense of other investors, according to people familiar with the investigations (See  Investigators Look At Putnam Plan Sponsor Rebates ).