SEC Charges Six Former Officers of Putnam Fiduciary Trust Company with Defrauding Clients of $4 Million
FOR IMMEDIATE RELEASE
Washington, D.C., Jan. 3, 2006 - The Securities and Exchange Commission announced today that it filed charges against six former officers of Putnam Fiduciary Trust Company (PFTC), a Boston-based registered transfer agent, for engaging in a scheme beginning in January 2001 by which the defendants defrauded a defined contribution plan client and group of Putnam mutual funds of approximately $4 million. The six defendants are
Karnig Durgarian, a former senior managing director and chief of operations for PFTC, as well as principal executive officer of certain Putnam mutual funds from 2002 through 2004;
Donald McCracken, a former managing director and head of global operations services for PFTC;
Virginia Papa, a former managing director and director of defined contribution servicing;
Sandra Childs, a former managing director who had overall responsibility for PFTC's compliance department;
Kevin Crain, a managing director who had responsibility for PFTC's plan administration unit; and
Ronald Hogan, a former vice-president who had responsibility for new business implementation at PFTC.
The Commission also announced today that it would not bring any enforcement action against PFTC because of its swift, extensive and extraordinary cooperation in the Commission's investigation of the transactions that are the subject of the Commission's complaint. PFTC's cooperation consisted of prompt self-reporting, an independent internal investigation, sharing the results of that investigation with the government (including not asserting any applicable privileges and protections with respect to written materials furnished to the Commission staff), terminating and otherwise disciplining responsible wrongdoers, providing full restitution to its defrauded clients, paying for the attorneys' and consultants' fees of its defrauded clients, and implementing new controls designed to prevent the recurrence of fraudulent conduct.
Walter G. Ricciardi, Deputy Director of the Division of Enforcement and District Administrator of the Commission's Boston District Office stated: "Although the conduct alleged here was egregious, PFTC's cooperation in this investigation and the remedial steps taken were extraordinary. In recognition of the company's actions, the Commission has determined it appropriate not to bring any enforcement action against PFTC in connection with the charges we are announcing today. We hope the Commission's actions here will encourage those who become aware of wrongdoing to do the right thing - stop the wrongful conduct, promptly report it to the Commission staff, and cooperate fully in any subsequent investigation of the conduct."
The Commission's complaint, which was filed on Dec. 30, 2005 in U.S. District Court in Boston, 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 or compensate their client for 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 Durgarian, Papa, Childs, and Crain also took steps to cover-up the wrongful conduct. 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 Commission is seeking injunctive relief and civil monetary penalties.
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Walter G. Ricciardi, Deputy Director and District Administrator
David P. Bergers, Associate District Administrator
Additional materials: Litigation Release No. 19517