According to a letter sent to all 401(k) retirement account investors from KarnigDurgarian , Putnam’s chief of operations, anyone caught darting quickly in and out of Putnam’s international equities funds and some bond funds within 90 days of purchase will be charged a 1% redemption fee, according to a Reuters report. Boston-based Putnam has long prohibited this so-called market timing, but 401(k) plan investors have never been penalized with fees designed to ward off the behavior that is a key theme in the industrywide investigation by both federal and state authorities.
Laura McNamara, a Putnam spokeswoman, told Reuters that the company sent the letters to every investor in all of the more than 2,000 401(k) plans that it administers. The fees will be charged, effective December 1.
Putnam, a unit of insurance broker Marsh & McLennan Cos. Inc., faces securities fraud charges in Massachusetts for letting certain 401(k) investors and managers engage in market timing, which involves rapid trading in and out of funds in hopes of making a profit on stale prices. Last week, Putnam settled federal fraud charges (See Putnam, SEC Reach Securities Fraud Settlement ).
Nowhere does the Durgarian letter mention that Putnam, the nation’s fifth-biggest mutual fund company, is a key player in the scandal over market timing and late trading fund practices. Six Putnam managers were removed for engaging in market timing (See Putnam Excuses Two More Fund Managers ). Putnam also said more than a dozen members of Boilermakers, Local 5, in New York conducted short-term trading in their 401(k) accounts (See Union K Plan Trading Activity Leads to Putnam Fund Probe ). Regulators are also investigating the trades Putnam’s top lawyer, William Woolverton , made. The company has said Woolverton’s trades cannot be termed market timing.
Since regulators filed charges on October 28, Putnam has taken a number of steps to stem the scandal’s fallout. It removed Lawrence Lasser , who served as Putnam’s president for 17 years, settled charges with the US Securities and Exchange Commission, and promised to reimburse clients for losses (See Trading Probes Muscle Out Strong, Putnam Chiefs ). The company also launched a new ad campaign promising to restore integrity as investors pulled money from Putnam (See ‘Ad’ Interpublic To List of Companies Dumping Putnam ).
In the first two weeks of November, Putnam’s assets under management shrunk by nearly 8% to $256 billion, Marsh & McLennan said in a securities filing released this week. Two West Coast pension plans – the $154 billion California Public Employees’ Retirement System, the biggest US public pension fund, and the Oregon Investment Council – fired Putnam this week as manager, jointly pulling about $1.7 billion in assets (See Oregon Ends Putnam Investment Management Relationship ).