Originally created 02/03/05

Consultant: Fund company shortchanged investors

BOSTON - A consultant appointed to tally investors' losses from mutual fund trading abuses at Putnam Investments has found investors were shortchanged by around $100 million in the first big market-timing case, the state's chief regulator said Wednesday.

The Harvard business professor hired for the task as part of a $110 million settlement Putnam reached with federal and state regulators last April is still compiling his report. But professor Peter Tufano has preliminarily determined losses of about $100 million, Massachusetts Secretary of State William Galvin said in an interview.

Tufano declined through a spokeswoman to comment.

The Wall Street Journal and The Boston Globe, citing sources familiar with the matter, reported in Wednesday's editions a figure of as much as $100 million. The Journal said the total was about 10 times higher than the $7 million to $10 million in damages that the company internally estimated last March.

The $110 million settlement Putnam agreed to pay was mostly in the form of penalties, but also included restitution of about $10 million that could vary depending on the consultant's finding as to how much investors lost.

Boston-based Putnam, a unit of Marsh & McLennan Cos., issued a statement saying it could not comment on the consultant's progress because his work is incomplete.

But the company said, "We continue to work very closely and cooperatively with the independent consultant, the trustees of the Putnam Funds and the regulatory authorities to ensure that Putnam shareholders are fully compensated."

Galvin said initial estimates of losses "were obviously too low."

His office is trying to identify investors who suffered losses so they can receive compensation.

David Bergers, head of enforcement for the Securities and Exchange Commission's Boston office, said "We look forward to getting money back to shareholders." He declined further comment.

Putnam in the fall of 2003 became the first formally accused of wrongdoing in a scandal over mutual fund trading practices that eventually enveloped much of the industry.

At issue is market timing - the use of quick, in-and-out trades that skim profits from long-term shareholders and benefit favored short-term investors.

Market-timing disclosures have led many investors to withdraw money from Putnam and other mutual fund companies where abuses occurred.

Putnam's assets under management reached as high as $277 billion before the scandal. At the end of last month, that figure had declined to $204 billion, with $138 billion in mutual fund assets and $66 billion in institutional assets, according to company data.

Putnam also was fired from handling large public pension funds in California, Oregon and Vermont. In Putnam's home state of Massachusetts, state officials agreed in October to let the company return as a money manager after it adopted reforms intended to ensure fair trading.

Putnam fired at least 16 employees for their role in the improper trading, and replaced Chief Executive Lawrence Lasser with Ed Haldeman. The seventh-largest mutual fund firm announced in September that it will provide more information about its fees, brokerage commissions and executive pay.


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