Putnam Trading Probe Leads to More Firings, Employee Warnings

December 16, 2003 (PLANSPONSOR.com) - An internal review of the trading accounts of thousands of Putnam Investments employees has led to the firing of nine workers for improper trading and others being "strongly admonished," the beleaguered fund company announced.

Chief Executive Officer Ed Haldeman also announced in an open letter to Putnam investors that information about a group of about six former employees – who Haldeman said operated in “a coordinated manner” to initiate improper trades – has been turned over to federal and state regulators “for whatever action they deem appropriate.”

The nine latest employee firings did not include any money managers, Haldeman said. Those workers receiving the warnings were allowed to keep their jobs either because they didn’t know enough about company trading policies or stopped when told to do so, Haldeman said.

The review analyzed the trading activity in Putnam funds of more than 12,700 Putnam employees who worked at the firm between January 1998 and October 2003. Of that number, 5,200 were Putnam employees as of October 1, 2003. The majority of the improper trading activity of past and present employees took place between 1998 and 2000, and was predominantly in international and global funds, the company said.

In none of the cases was the improper trading done under a formal agreement with a client or plan participant to allow market timing or late trading, Haldeman insisted. A ongoing widespread state/federal probe into fund trading practices has focused on market timing and late trading.

Putnam’s latest personnel moves follow a decision earlier this year, which led to the dismissal of a half dozen portfolio managers (See  Putnam Excuses Two More Fund Managers ) for trading abuses.

Haldeman said still ongoing were company reviews – one by Barry Barbash, former director of securities for the US Securities and Exchange Commission and one by a law firm on behalf of the Putnam funds’ boards of trustees.

Putnam has also vowed to reimburse the funds’ shareholders for any harm caused by the trading activity discussed in the Haldeman letter.

“We truly regret the trading issues that took place at Putnam, and have taken numerous steps to strengthen our governance, oversight, trading and compliance standards to ensure such breaches never happen again and to fully safeguard Putnam funds,” Haldeman vowed. “We have also taken a number of actions to ensure that no stone is left unturned in analyzing past trading activities.”

Asset Outflow

Because of the unrelenting outflows, Putnam said recently that its total assets under management fell by $32 billion to $245 billion in November (See Putnam Scandal Outflows Continue ).  On November 18, the California Public Employees’ Retirement System (CalPERS) ended its contract with Putnam. The mutual fund company managed $1.2 billion for CalPERS.

Ten state pensions dumped Putnam last month (See  More Pensions Pull Money From Putnam ), as did such companies as Wal-Mart Stores, Merck & Co. and Revlon (See  Wal-Mart Bails Out of Putnam Funds ). The customer exodus comes amid investigations of Putnam and the mutual fund industry by the SEC, as well as by state officials in New York and Massachusetts (See  Spitzer Fund Abuse Probe Pumps Out More Subpoenas ).

Those probes have accused Putnam of allowing some of its clients to engage in late trading and market timing even though Putnam’s prospectus says it discourages such activity. In a settlement with the SEC, Putnam admitted no wrongdoing, but agreed to reforms and future reimbursement to investors (See  Putnam, SEC Reach Securities Fraud Settlement ).