Originally created 03/17/04

Marsh & McLennan reports more subpoenas for Putnam

BOSTON -- The Securities and Exchange Commission has issued subpoenas to Putnam Investments over the company's directed brokerage and revenue sharing practices, indicating a widening probe into the company at the center of the mutual fund scandal.

In its annual report filed with the SEC, Putnam parent company Marsh & McLennan Cos. disclosed that Putnam has received subpoenas from the SEC's Philadelphia office about directed brokerage practices. It said the SEC has interviewed company employees.

The SEC's Chicago office and the National Association of Securities Dealers also want information from Putnam about revenue sharing arrangements, the report said.

"Putnam is fully cooperating with the regulatory authorities," the report said.

Revenue sharing is a practice in which brokerage firms steer clients toward mutual funds in exchange for payments from the fund companies. Directed brokerage is when a fund company gives its trading to a broker in exchange for the broker selling the firm's funds.

Putnam, which managed about $240 billion in assets as of Dec. 31, was the first investment firm formally accused of wrongdoing in the now-widespread scandal over improper market-timing trades.

Market timing refers to trades that move quickly in and out of mutual funds. The company's SEC filing on Monday reported that the U.S. Attorney in Boston, the Florida Department of Financial Services, the office of the Attorney General of New York, the secretary of state and the state auditor of West Virginia and the Boston office of the U.S. Department of Labor have also subpoenaed the company.

Putnam has already reached a partial settlement with the Securities and Exchange Commission over market timing, but still faces fraud allegations over the practice from Massachusetts regulators. After the scandal broke, Putnam lost tens of billions of dollars in assets.

Market timing is not illegal, but some regulators contend it is fraudulent for companies to tolerate it for some customers, despite promises in their prospectuses not to. Indirectly, profits made from market timing can skim profits from long-term investors.

Putnam spokeswoman Nancy Fisher referred a call for comment to Marsh & McLennan spokeswoman Barbara Perlmutter, who did not immediately return a call.

The company also reported that as of March 4, Marsh & McLennan and Putnam are the targets of about 70 civil complaints over market timing. Those actions have been filed in state and federal courts in New York, Massachusetts, California, Illinois, Connecticut, Vermont, Kansas and North Carolina.

Mercer Bullard, a law professor at the University of Mississippi and a former assistant chief counsel in the SEC's mutual funds division, said it is not surprising that so many states are seeking information from Putnam, given that the company is at the center of the scandal.

"If anything, there aren't as many states involved as should be. You're talking about the most popular investment vehicle ever created," he said. "This should be the vehicle by which state regulators take more interest than another other securities issue."


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