Compliance November 29, 2007

Court Trims Three Defendants from Trading Fraud Case

A federal judge in Massachusetts has thrown out civil fraud charges against three ex-executives of Putnam Fiduciary Trust Company (PFTC), but refused to dismiss charges against three others.
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U.S. District Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts issued the ruling in a December 2005 case filed by the Securities and Exchange Commission (SEC), saying the SEC’s complaint did not allege sufficient conduct by three of the defendants to sustain the claims against them, according to an SEC announcement.

The SEC charged that the six defendants were involved in PFTC’s one-day delay in investing assets of a defined contribution client, Cardinal Health, Inc., in January 2001 (See SEC Charges Six Ex-Putnam Execs in Retirement Plan Fraud). The regulators claimed the Cardinal Health DC plan lost almost $4 million because of substantial market gains during that trading session.

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According to the allegations, the defendants improperly shifted approximately $3 million of the costs to shareholders of certain Putnam mutual funds through “deception, illegal trade reversals, and accounting machinations.” The SEC said the defendants improperly allowed the Cardinal Health plan to bear approximately $1 million of the loss without telling the client and then covered up their activities.

Gorton’s dismissal covered defendants:

  • 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.

At the same time, however, Gorton declined to dismiss allegations against:

  • Karnig Durgarian, of Hopkinton, Massachusetts, 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, of Melrose, Massachusetts, a former managing director and head of global operations services for PFTC; and
  • Ronald Hogan, of Saugus, Massachusetts, a former vice-president who had responsibility for new business implementation at PFTC.

More information about the case, SEC v. Durgarian, D. Mass., Civil Action No. 05-12618-NMG, 11/13/07, is here.

Deals & People November 28, 2007

Prudential Snaps Up UBOC Recordkeeping Biz

Union Bank of California, N.A., has signed a definitive agreement to sell its retirement recordkeeping business to Prudential Retirement.
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The deal includes UBOC’s proprietary SelectBenefit and certain selected TruSource relationships. Additionally, Prudential will add Union Bank’s proprietary HighMark mutual funds to its investment offerings for retirement plan sponsors and their participants.
According to a UBOC press release, the decision to exit the retirement recordkeeping business was based on analytical data that showed the bank lacked scale in the rapidly consolidating industry, and would be required to make significant investments in technology to enhance products, services and the overall processing environment in its recordkeeping operation to remain competitive and profitable.
Union Bank will continue to offer retirement plan recordkeeping services to clients going forward, but “in partnership with Prudential,’ according to UBOC Executive Vice President Johs Worsoe, head of Global Markets. The bank’s retirement trustee business will not be affected by the change, and Union Bank will remain custodian for certain parts of the business being transitioned to Prudential, according to the firm.
“This was a difficult decision reached after much deliberation, but I’m confident our clients will be well served by Prudential’s strong client focus and solid commitment to the retirement business,’ said UBOC Chief Executive Officer Masaaki Tanaka. “A large number of the employees affected by our decision will either be retained by Prudential or will potentially find positions elsewhere in our company.’
Prudential said the transaction will enable Prudential to build and enhance its relationships with Union Bank’s bankers, who will be able to offer Prudential Retirement products and services to their institutional banking customers. Under terms of the agreement, Prudential will pay $103 million for Union Bank’s book of retirement business, comprising approximately 670 plans, representing nearly 170,000 participants and approximately $8 billion in account values.
The companies expect to close the transaction in the fourth quarter of 2007 and complete the transition of the acquired retirement plans by June 30, 2008. Consummation of the transaction is subject to customary closing conditions, including regulatory approvals.

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