U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21110 / June 29, 2009
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)
FORMER PUTNAM FIDUCIARY TRUST COMPANY EXECUTIVE SETTLES FRAUD ACTION BROUGHT BY SEC
The Commission announced today that on June 29, 2009, the United States District Court for the District of Massachusetts entered a final judgment by consent imposing a permanent injunction, civil penalty, and other relief against a former executive 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. Donald F. McCracken, of Naples, Maine, a former senior managing director and head of fund accounting at PFTC consented to imposition of the final judgment without admitting or denying the allegations of the Commission's Complaint. The Court issued an order of permanent injunction against McCracken against future violations of Section 17(a)(3) of the Securities Act of 1933 and imposed a civil money penalty of $35,000. McCracken also agreed to an order barring him from association with any broker or dealer and transfer agent with the right to reapply for association after one year, which order will be imposed in a separate administrative proceeding. As part of the settlement, the Commission also agreed to dismiss certain other charges against McCracken.
The Commission=s Complaint against McCracken and five 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. Two other defendants also settled with the SEC in November 2008, and three others were dismissed from the action. McCracken is the final defendant.
For more information, see Litigation Release Nos. 19517 (January 3, 2006), 20373 (November 27, 2007), 20797 (November 3, 2008), and 20900 (February 13, 2009).