Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, November 27, 2007

Court Allows Fraud Charges to Proceed Against Some Former Executives of Putnam Fiduciary Trust

Mixed results for the SEC in an enforcement action against former executives of Putnam Fiduciary Trust Co, a transfer agent -- the U.S. District Court for  the  District  of  Massachusetts dismissed charges against three former executives, but allowed the case to proceed against three other former executives.  According to the SEC's complaint, the former PFTC executives engaged in a scheme beginning  in January 2001 by which the defendants defrauded a defined  contribution  plan client and group of Putnam mutual funds of approximately  $4  million. The SEC alleges that the defendants'  misconduct arose out of PFTC's one-day delay in investing certain  assets  of  a  defined  contribution client, Cardinal Health, Inc.,  in  January  2001.  The markets rose steeply on the missed day, causing  Cardinal  Health's  defined  contribution plan to miss out on nearly  $4 million of market gains. According to the complaint, rather than  inform  Cardinal  Health  of  the  one-day  delay and the missed trading gain, the defendants decided to improperly shift approximately $3 million of the costs of the delay to shareholders of certain Putnam mutual     funds  through  deception,  illegal  trade  reversals,  and accounting     machinations.  The  complaint  also  alleges  that  the defendants  improperly  allowed Cardinal Health's defined contribution plan  to  bear approximately $1 million of the loss without disclosing to Cardinal Heath that they had done so. The complaint further alleges that  certain  defendants  also  took  steps  to cover-up the wrongful conduct and, as a result, the conduct was not discovered until January 2004.   The SEC is seeking injunctive relief and monetary penalties.

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