Eliot Spitzer and Putnam Issues
When Eliot Spitzer, New York's attorney-general, and William Galvin, Massachusetts' state regulator, started to poke around the trading practices of the mutual fund industry, the big players reacted resentfully. On Monday November 3rd, Lawrence Lasser was fired as chief executive of Putnam Investments following a probe into "market-timing." Market timing has been described as using frequent trading to take advantage of old prices. The same day, officials from the SEC, America's top securities regulator, told lawmakers in Washington that as many as one in ten top fund-management groups and more than a quarter of brokers may have allowed, or even encouraged, clients to engage in illegal "late trading". (New York Times)
Putnam's Mr. Lasser was one of the giants of America's $7 trillion fund management industry. He was chief executive of Putnam for 18 years and had increased its funds under management sevenfold since 1990 (Forbes).
Any settlement may depend on what happens to the charges against Putnam. Both federal and state regulators have accused the company of allowing clients and even managers to engage in the illegal market-timing. Putnam denied wrongdoing. Nevertheless, investors have been withdrawing their money in the billions.
Mr Lasser is not the first casualty of the scandal, nor is he likely to be the last. Over the past few weeks, Bank of America has also fired the head of its mutual fund arm, and Alliance Capital and Prudential have fired staff after conducting their own probes. Just recently, the SEC brought fraud charges relating to market-timing trades against five former Prudential brokers and a branch manager. According to testimony from the SEC on Capitol Hill trading abuses go right across the industry. Stephen Cutler, the SEC's enforcement director, said that more than 80% of fund managers allowed intermediaries to send...