State regulators are focusing on the top lawyer at Putnam Investments as they pursue an investigation into trading abuses that led to a partial settlement with federal regulators yesterday.
A source familiar with the state investigation said William Woolverton, Putnam’s general counsel, made 13 fund trades in company accounts in the first four months of 2000. The source said investigators suspect Woolverton may have been engaged in market- timing using Putnam international funds for his personal account, and suggested fraud charges related to that activity may result.
Documents obtained by the Herald indicate that Putnam staffers were aware of Woolverton’s trading activity in May 2000. His name appears on a list of Putnam participants in various funds that includes Justin Scott and Omid Kamshad – identified as Putnam fund managers who had engaged in market-timing, or short-term trading, for their own accounts.
Kamshad and Scott face civil fraud charges.
But Charles “Ed” Haldeman, Putnam’s recently installed chief executive, said Putnam reviewed Woolverton’s trades in international funds and found no examples of market-timing. He said the shortest gap between Woolverton’s purchase and sale of the fund shares was two months, while most market-timing happens in just a few days.
Secretary of State William Galvin, the state’s chief securities regulator, refused to comment on whether Woolverton’s trading activity was being examined. But he said “other individuals” could be charged in the ongoing probe.
Galvin also blasted the Securities and Exchange Commission’s settlement with Putnam, made public yesterday, because it permits the Boston fund firm to neither admit nor deny wrongdoing.
“This shows that their true interest is in protecting the securities industry (and that) the SEC is more interested in papering over wrongdoing than exposing it,” Galvin said.
Peter Bresnan, acting district administrator in the SEC’s Boston office, disputed Galvin’s claim that the agency struck a bad deal. He said the fraud case against Putnam will go before an administrative law judge who will determine any penalties. As part of the deal, Putnam has agreed not to dispute the penalties assessed.
“We’ve moved quickly in order to immediately address the problems,” Bresnan said. “This (partial) settlement puts in place significant and far-reaching changes in the areas of compliance and corporate governance.”
New York Attorney General Eliot Spitzer also called the SEC deal inadequate and said his agency’s probe of the firm continues. Spitzer’s investigation of mutual fund trading abuses involving a New Jersey hedge fund ignited the widening scandal.
In its agreement with the SEC, Putnam also promised to make changes, including reforming how its funds are governed to when it must report future instances of improper trading to authorities.
The SEC said its fraud cases against fund managers Scott and Kamshad continue. Galvin also is pursuing fraud cases against the two, who no longer manage money for Putnam.
Regulators accused Putnam of fraud for failing to curtail market- timing trading by insiders and some investors while leading most investors to believe that the practice was not tolerated.
Haldeman hailed the deal as an important step forward.
“We’re pleased and hope that it’s the first of many steps that we’ll take to restore the confidence of investors in Putnam,” he said.
Russ Kinnel, a Morningstar research chief, called the reforms in the deal imopressive. “They go to the heart of a lot of the key issues.”
