Mass. Secy. of State Levies $50m Fine against Investment Firm

On April 8, Secy. of the Commonwealth William Galvin levied a $50 million fine on Putnam Investment in a settlement in which Putnam admitted to allowing some managers and certain fund participants to market time in its mutual funds.  The administrative settlement also orders Putnam to pay $5 million in restitution to the affected funds. In a related settlement, the federal Securities and Exchange Commission also fined Putnam $50 million and ordered $5 million in restitutions to the funds.


“This case uncovered a corporate culture that turned a resolute blind eye to the most egregious conduct on the part of its managers who indulged in market timing, as well as the favored fund participants who were allowed to market time at the expense of other shareholders,” Secretary Galvin said.  “In accepting this order, Putnam has admitted its wrongdoing which is a key element in restoring the trust shareholders should be able to have in the managers of their money.”


The Securities Division filed an administrative complaint against Putnam Investment Management, LLC last Oct., charging Putnam with failing to halt market timing in the Intl. Voyager Fund by members of the Boilermakers Local Lodge No. 5 which had a defined contribution 401K plan administered by Putnam.  The Division also found market timing activity and excessive short-term trading in a 401K plan of the Joint International Board of Electrical Workers, that Putnam took no effective steps to halt.


Mutual fund values are set daily at 4:00 pm EST.  But because some foreign markets close earlier, the 4:00 estimate may not reflect the most current value of intl. funds.  Mutual funds are intended to be held onto for the long-term accumulation of value.  But some investors engage in “market-timing” of intl. funds to maximize their daily profits, by buying or selling fund shares on the basis of either good or bad news, from which investors could predict an increase or decrease in the fund’s estimated value the next day


Massachusetts investors owe a debt of gratitude to Peter Scannell who first brought to light the yawning gap between what Putnam declared in their fund prospectuses and the actual conduct that the firm allowed,” Secy. Galvin said. [Mass. Secy. of Commonwealth, 4/8/04]