Putnam Trustees Approve Outside Study Putting Market Timing Damages at $108.5M

March 3, 2005 (PLANSPONSOR.com) - The Trustees of The Putnam Funds have approved a report that put the firm's total market timing reimbursement costs at $108.5 million, a figure well above what was previously thought.

The methodology used to calculate the ultimate reimbursement figure was created by Harvard Business School Professor Peter Tufano, who was hired as an outside consultant to assess the damages to investors due to market timing in Putnam mutual funds (To see the SEC announcement of completion on the study, please go here ). Tufano looked at all employee and 401(k) trading over numerous years, according to Putnam, and also developed a distribution plan, which is expected to be finalized shortly.

Putnam had originally put aside $25 million for expected reimbursements for market timing in its funds. The company, besieged by blow after blow in relation to the mutual fund trading scandal, took another hit when Tufano originally released his report detailing damages that went beyond most predictions (See Damages to Putnam Investors May Have Been $100M Including $46M from K Plans ). In its original settlement with regulators, Putnam had said that total damages only reached a maximum of $10 million.

Tufano looked at transactions in Putnam mutual funds over a period of six years. The losses have come from three sources:

  • trading in Putnam’s 401(k) and other retirement and college savings plans that cost investors $46 million.
  • Putnam employees market timing their funds, costing shareholders between $3 million and $6 million from January 1997 to December 2003.
  • Tufano also reportedly estimates that the massive withdrawal of funds following the disclosure of such practices shortchanged investors by $53 million in transaction costs due to the need to sell billions of dollars in securities to provide redeeming shareholders with money.

Putnam has already settled with the SEC and Commonwealth of Massachusetts over charges of market timing, agreeing to pay $110 million (See Details Emerge About Putnam Settlement ).