SEC seeks fine against Putnam of `hundreds of millions of dollars'

Improper fund trades are an `egregious fraud'

March 25, 2004|By BLOOMBERG NEWS

WASHINGTON - Putnam Investments, the first fund company formally accused of wrongdoing in the state and federal probes of alleged improper trading, should pay a penalty of "hundreds of millions of dollars," the Securities and Exchange Commission says.

Putnam, the sixth-biggest U.S. mutual fund manager, and the SEC are arguing in an administrative proceeding over how big a fine the Boston company should pay for failing to stop six of its fund managers from allegedly making so-called market timing trades that lowered returns for shareholders.

"There should be a price for Putnam's egregious fraud," the SEC said in a 35-page brief filed in the proceeding yesterday. Putnam countered in its 45-page brief that the penalty sought by the SEC was "wildly disproportionate" when measured against previous cases and relevant laws.

The SEC and New York Attorney General Eliot Spitzer have extracted more than $1.6 billion from fund companies since they announced their investigations in September. Last week, Bank of America Corp. and FleetBoston Financial Corp. agreed to a $675 million penalty, the biggest yet.

Putnam, owned by Marsh & McLennan Cos., said shareholder losses caused by short-term trading were in the "low-single-digit millions of dollars." The sanction that the SEC is seeking would violate Putnam's constitutional right to due process and the Eighth Amendment prohibition against excessive fines, the company said.

Nancy Fisher, a spokeswoman for Putnam, said yesterday that the company was taking "full responsibility" for what happened and had agreed to repay fund investors for losses. The argument with the SEC is "just over the proportionality of the penalty," she said.

Peter H. Bresnan, interim head of the SEC's Boston office, and John Heine, a spokesman for the SEC in Washington, also declined to comment.

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