Monday, November 3, 2008
On October 31, 2008, the United States District Court for the district of Massachusetts entered a final judgment by consent imposing permanent injunctions and other relief against two former executives of transfer agent Putnam Fiduciary Trust Company (PFTC) in a case filed by the SEC. The Complaint alleged that the defendants engaged in a scheme beginning in January 2001 by which they and other executives of PFTC defrauded a defined contribution plan client and group of mutual funds of approximately $4 million. Karnig H. Durgarian, Jr., a former senior managing director and chief of operations of PFTC, and Ronald B. Hogan, a former vice president who had responsibility for new business implementation, each consented to imposition of the final judgment without admitting or denying the allegations of the Commission's Complaint. The Court issued orders of permanent injunction against both defendants and imposed civil money penalties of $100,000 and $35,000, respectively.
The Commission's Complaint against Durgarian, Hogan, and four other defendants alleged 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 alleged 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 case against the remaining defendant, Donald F. McCracken, a former head of global operations services for PFTC, is proceeding. An appeal of a court ruling dismissing three other defendants from the case is currently pending before the United States Court of Appeals for the First Circuit.