U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20797 / November 3, 2008
Securities and Exchange Commission v. Karnig H. Durgarian, Jr., et al., (United States District Court for the District of Massachusetts, Civil Action No. 05-12618-NMG)
TWO FORMER EXECUTIVES OF PUTNAM FIDUCIARY TRUST COMPANY SETTLE FRAUD ACTION BROUGHT BY SEC
The Commission announced today that on October 31, 2008, the United States District Court for the district of Massachusetts entered a final judgment by consent imposing permanent injunctions and other relief against two former executives of transfer agent Putnam Fiduciary Trust Company (PFTC) in a case filed by the Commission in December 2005. The Complaint alleged that the defendants engaged in a scheme beginning in January 2001 by which they and other executives of PFTC defrauded a defined contribution plan client and group of mutual funds of approximately $4 million. Karnig H. Durgarian, Jr., of Hopkinton, Massachusetts, a former senior managing director and chief of operations of PFTC, and Ronald B. Hogan of Saugus, Massachusetts, a former vice president who had responsibility for new business implementation, each consented to imposition of the final judgment without admitting or denying the allegations of the Commission's Complaint. The Court issued orders of permanent injunction against both defendants and imposed civil money penalties of $100,000 and $35,000, respectively.
The Commission's Complaint against Durgarian, Hogan, and four other defendants, filed on December 30, 2005, alleges that the defendants' misconduct arose out of PFTC's one-day delay in investing certain assets of a defined contribution client, Cardinal Health, Inc., in January 2001. The markets rose steeply on the missed day, causing Cardinal Health's defined contribution plan to miss out on nearly $4 million of market gains. According to the Complaint, rather than inform Cardinal Health of the one-day delay and the missed trading gain, the defendants decided to improperly shift approximately $3 million of the costs of the delay to shareholders of certain Putnam mutual funds through deception, illegal trade reversals, and accounting machinations. The Complaint also alleges that the defendants improperly allowed Cardinal Health's defined contribution plan to bear approximately $1 million of the loss without disclosing to Cardinal Heath that they had done so. The Complaint further alleges that certain defendants also took steps to cover-up the wrongful conduct, and, as a result, the conduct was not discovered until January 2004.
The Complaint alleges that through their fraudulent conduct, defendants violated Section 17(a) of the Securities Act of 1933 and violated and/or aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934. The complaint further alleges that Durgarian also violated Sections 34(b) and 37 of the Investment Company Act of 1940. The Court issued an order of permanent injunction against Durgarian prohibiting him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 34(b) and 37 of the Investment Company Act of 1940 and ordered Durgarian to pay a civil money penalty of $100,000. The Court also issued a permanent injunction against Hogan prohibiting him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and ordered Hogan to pay a civil money penalty of $35,000. The case against the remaining defendant, Donald F. McCracken of Melrose Massachusetts, a former head of global operations services for PFTC, is proceeding. The Commission is seeking injunctive relief and civil monetary penalties against McCracken. An appeal of a court ruling dismissing three other defendants from the case is currently pending before the United States Court of Appeals for the First Circuit. The three dismissed defendants are Virginia Papa, of Newton, Massachusetts, a former managing director and director of defined contribution servicing; Sandra Childs, of Duxbury, Massachusetts, a former managing director who had overall responsibility for PFTC's compliance department; and Kevin Crain, of Princeton, New Jersey, a managing director who had responsibility for PFTC's plan administration unit.