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SEC: Putnam Should Pay Substantial Fine

Mar 25, 2004 | Bloomberg News

Putnam Investments, the first fund company formally accused of wrongdoing in the state and federal probes of alleged improper trading, should pay a financial penalty of ''hundreds of millions of dollars," according to the Securities and Exchange Commission.

Putnam, the sixth-biggest US mutual fund manager, and the SEC are arguing in an administrative proceeding over how big a fine the Boston-based company should pay for failing to stop six of its fund managers from allegedly making so-called market-timing trades that lowered returns for shareholders.

''There should be a price for Putnam's egregious fraud," the SEC said in a 35-page brief filed in the proceeding. Putnam countered in its 45-page brief that the penalty sought by the SEC was ''wildly disproportionate" when measured against previous cases and relevant laws.

Putnam, owned by Marsh & McLennan Cos., said shareholder losses caused by short-term trading were in the ''low-single-digit millions of dollars." The sanction that the SEC is seeking would violate Putnam's constitutional right to due process and the Eighth Amendment's bar of excessive fines, the company said.

Nancy Fisher, a spokeswoman for Putnam, said the company was taking ''full responsibility" for what happened and had agreed to repay fund investors for losses. The argument with the SEC is ''just over the proportionality of the penalty," she said.

Peter Bresnan, interim head of the SEC's Boston office, declined to comment. John Heine, a spokesman for the SEC in Washington, also declined to comment.

Shares of Marsh & McLennan fell 12 cents yesterday to $46.30 in composite trading on the New York Stock Exchange. The shares have declined 3.3 percent this year, as the Standard & Poor's 500 index dropped 1.9 percent.

The SEC said Putnam should repay some of its fees during the almost four-year period when the firm failed to disclose the alleged improper trading.

The size of the penalty should be calculated based on the amount of money that investors yanked from Putnam after the news came out, the SEC said. In the fourth quarter, investors withdrew $54 billion, Putnam has said. If the company earned 0.5 percent in fees on the deposits, that would total $270 million.

Putnam also should be fined for each improper trade made by its employees at the highest level allowed under SEC rules, the agency said. The maximum ''tier three" penalty is $550,000 for acts committed before Feb. 2, 2001, and $600,000 for acts committed after that date.


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