Tuesday, November 27, 2007
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.