Putnam Trustee Report Finds No Market Timing or Late Trading

March 23, 2004 (PLANSPONSOR.com) - The Audit and Pricing Committee of the Board of Trustees of The Putnam Funds has found no evidence of any agreements entered into by the firm that permitted or facilitated the late trading of Putnam mutual funds.

In addition, the trustee committee found no evidence that Putnam entered into any special arrangements to accommodate market timing or excess short-term trading.   Rather, the committee found “numerous instances” where Putnam rejected offers to invest in Putnam Funds in exchange for permission to engage in frequent trading, according to findings issued as part of a report to Putnam’s Board of Trustees.

“The report makes it clear that what happened at Putnam is significantly different from what apparently happened at other mutual fund firms,” John Hill, Chairman of the Board of Trustees said in a news release.   “There were no sticky asset deals; no corporate deals to let hedge funds time Putnam Funds; and no late trading arrangements.”

Overall, the committee’s report concludes Putnam’s procedures for monitoring and deterring excessive short-term trading in regular mutual fund retail accounts were reasonable “in light of the tools and information available to Putnam Investments, contemporary regulatory guidance and general industry practice.”   However, the committee still found room for improvement in the process, specifically in two areas:

  • the monitoring of employee trading and management’s response to employee trading abuses,
  • in the monitoring and deterring excessive short-term trading in the 401(k) plans Putnam Fiduciary Trust Company (“PFTC”) administered.   As a case in point, the report points to the activity detected in the Boilermakers Local No. 5 plan (See  Union K Plan Trading Activity Leads to Putnam Fund Probe ).

Despite these shortcomings, the overall incidence of excessive trading by participants in 401(k) plans administered by Putnam was very small and has declined since 2000, the report found.

Speaking to the inappropriate trading, the committee recommends to the trustees that restitution be sought for the funds’ shareholders for the costs they incurred as a consequence of inappropriate employee trading in The Putnam Funds and for Putnam’s failure to control excessive trading in a limited number of 401(k) accounts in a timely manner.   In fact, the committee has retained consultants to provide assistance in computing appropriate dollar amounts for restitution to the applicable mutual funds and their shareholders.

However, Hill points out that the report shows “the vast majority of Putnam employees – about 99% – did not engage in inappropriate trading. Their professional integrity and ethical
standards should not be impugned as a result of the behavior of a small number of their colleagues.”

“Our Board applauds the actions Putnam and its owner have taken over the past several months to respond to the market timing allegations,” Hill concludes.   “We are encouraged by the new spirit at Putnam and look forward to working with Putnam and its owner to implement further changes that will benefit our shareholders.”

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