Former Putnam Execs Agree to SEC Settlement

Two former executives of transfer agent Putnam Fiduciary Trust were given permanent injunctions and ordered to pay civil penalties, the Securities and Exchange Commission announced.

The Sec said that on Friday the United States District Court for the district of Massachusetts entered a final judgment by consent imposing permanent injunctions and other relief against the former executives, Karnig H. Durgarian Jr. and Ronald B. Hogan. The two were also ordered to pay civil penalties of $100,000 and $35,000, respectively. Neither admitted or denied wrongdoing as part of the settlement, according to an SEC release.

The SEC’s complaint alleged that the two 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. Durgarian was a former senior managing director and chief of operations of PFTC, and Hogan was a former vice president who had responsibility for new business implementation.

The Commission said the misconduct arose from PFTC’s one-day delay in investing certain assets of 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 SEC’s 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 alleged 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, and 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 case against the remaining defendant, Donald F. McCracken, a former head of global operations services for PFTC, is proceeding, the SEC said (see Court Trims Three Defendants from Trading Fraud Case).