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Chrysler Drops Financial Company In Scandal

Nov 20, 2003 | AP

DaimlerChrysler AG's Chrysler division has dropped Boston-based Putnam Investment funds from its retirement plan offerings after a scandal involving the company.

Chrysler recently told its employees to switch out of Putnam funds and on Monday reinvested employee 401(k) funds still with Putnam in other funds that track the S&P 500 Index, The Detroit News reported Thursday.

Chrysler did not disclose the amount withdrawn from Putnam funds.

Investors have withdrawn more than $20 billion from Putnam funds since Massachusetts and the U.S. Securities and Exchange Commission filed civil fraud charges last month against the company, part of an unfolding scandal in the industry.

The SEC reached a partial settlement with Putnam last week, drawing criticism from state regulators in Massachusetts and New York, who said the federal agency was too lenient in its dealings with the No. 5 mutual fund company.

Chrysler said in a note to employees that one of the Putnam managers charged by the regulators oversaw one of the funds offered in its savings plans.

"In light of the allegations, we decided to eliminate Putnam funds from the investment menu," the automaker said.

General Motors Corp. and Ford Motor Co. do not offer Putnam funds in their 401(k) retirement plans.

News of the DaimlerChrysler decision followed Wednesday's vote by the Oregon Investment Council to fire Putnam as manager of $500 million in state pension funds. The council unanimously endorsed a recommendation by state Treasurer Randall Edwards to drop Putnam.

"The mutual fund industry is reeling because of the market timing controversy, and Putnam is at the forefront of this scandal," Edwards said. "Our responsibility is to grow the fund, and I no longer believe Putnam can help us achieve that."

Calls to Putnam officials were not immediately returned.

The state hired Putnam in October 2002 to manage investment for the Oregon Public Employees Retirement Fund.

Pension fund assets under Putnam will be temporarily switched to other investment managers until the council decides on a replacement.

The council oversees investment of $50 billion in assets for several Oregon state funds, including the pension fund, the State Accident Insurance Fund, and the Common School Fund.

The charges against Putnam center on allegations of market timing - the use of quick, in-and-out trades that skim profits from longer-term shareholders. The practice is not illegal but most funds do not allow it. Regulators have said that allowing selective market timing, despite policies against it, constitutes fraud.

The growing scandal quickly caught the attention of Congress, and the House overwhelmingly voted Wednesday to toughen penalties for mutual fund abuses and to make sure investors are provided with more information.

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