
Putnam Investments, a well-established investment management company, has been charged with scamming thousands of investors. In 2006, the Securities and Exchange Commission (SEC) filed a complaint against Putnam, alleging that the company had engaged in a massive market timing scheme.
The SEC claimed that Putnam had allowed certain large institutional investors to make frequent trades in and out of the company's funds, while also charging them lower fees. This practice allowed the institutions to make huge profits at the expense of other investors.
The SEC's complaint alleged that Putnam had knowingly allowed this practice, despite its own policies prohibiting market timing. The company's actions were said to have resulted in significant losses for many investors.
Putnam ultimately settled the charges with the SEC, agreeing to pay a $100 million fine and reform its policies to prevent similar practices in the future.
Putnam Charged
Putnam Investments was charged with violating the Investment Company Act of 1940, specifically for failing to disclose the risk of investing in its municipal bond funds.

The SEC alleged that Putnam misled investors by downplaying the risks associated with these funds.
Putnam's municipal bond funds had invested in high-yield, high-risk bonds, which were not suitable for conservative investors.
The SEC charged Putnam with violating the Investment Company Act of 1940, which requires mutual funds to disclose all material risks to investors.
Putnam agreed to pay a $10 million fine to settle the charges.
The SEC's investigation found that Putnam's marketing materials and sales presentations failed to adequately disclose the risks associated with the municipal bond funds.
Putnam's failure to disclose these risks led to significant losses for some investors.
Putnam Fund Scandal
Putnam Investments has estimated that shareholder losses from improper fund trading were $7 million to $10 million.
The company is conducting a study to help decide how much to repay shareholders in any settlement of the charges brought against it by regulators.
The internal estimate is at least 10 times the amount that Putnam has previously acknowledged, which was $700,000 in profits skimmed from other shareholders.

Putnam has fired six fund managers and nine other employees for improper short-term trading in Putnam funds.
The $7 million to $10 million estimate includes losses resulting from allegedly improper trading by those and any other employees found to have engaged in improper fund exchanges.
Putnam is working with regulators to calculate the appropriate number for providing full restitution to shareholders.
The Securities and Exchange Commission and the Massachusetts Securities Division charged Putnam with civil fraud relating to fund managers' trading in October.
A partial settlement was reached in November, but the agency has yet to assess a penalty.
Putnam has not commented on the ongoing discussions with regulators about a settlement.
SEC Investigation
The SEC Investigation into Putnam Investments was a significant development in the scandal. In 2003, the Securities and Exchange Commission (SEC) launched an investigation into Putnam Investments, the largest mutual fund manager in the US.
The SEC investigation was sparked by allegations of market timing and late trading in Putnam's funds. Putnam was accused of allowing certain investors to trade their shares at the end of each day, after the market closed, at the next day's price.

The investigation revealed that Putnam had allowed these traders to make millions of dollars in profits by exploiting a loophole in the fund's rules. This practice was not only unfair to other investors but also put the entire fund at risk.
Putnam's chief executive, Lawrence Lasser, was heavily criticized for his handling of the situation. He had been aware of the market timing and late trading practices but had failed to take adequate action to stop them.
In 2004, Putnam agreed to pay $110 million to settle the SEC's charges.
Sources
- https://www.nytimes.com/topic/company/putnam-investments
- https://www.latimes.com/archives/la-xpm-2003-oct-29-fi-putnam29-story.html
- https://www.investmentexecutive.com/news/industry-news/putnam-pegs-losses-in-fund-scandal-at-up-to-us10-million/
- https://www.nbcnews.com/id/wbna10696261
- https://thedailyrecord.com/2003/10/28/putnam-two-employees-face-civil-complaints-for-alleged-market-timing/
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