The Securities and Exchange Commission on Tuesday charged six former officers of Putnam Fiduciary Trust Co., a Boston transfer agent, with defrauding Putnam mutual funds and a corporate retirement plan of nearly $4 million.
The SEC said it would not take any enforcement action against the transfer agent because of its "swift, extensive and extraordinary cooperation" with the commission's investigation of the alleged fraud.
The SEC, in a lawsuit filed last Friday in U.S. District Court in Boston, said the defendants delayed investing certain assets of a defined contribution plan offered by Cardinal Health Inc. (CAH), for one day in January 2001, causing the plan to miss out on nearly $4 million in market gains, because stocks "rose steeply" that day.
Rather than informing Cardinal Health of the delay or compensating it for the missed gain, the defendants "decided to improperly shift" about $3 million of the costs tied to the delay to shareholders of certain Putnam mutual funds "through deception, illegal trade reversals, and accounting machinations," the SEC said.
The SEC also alleges that the defendants improperly allowed Cardinal Health's contribution plan to bear about $1 million in losses without telling the company that they had done so.
The commission said four of the defendants took steps to cover up the fraud, which, as a result, was not discovered until January 2004.
The defendants include Karnig Durgarian, the former chief of operations for Putnam Fiduciary; Donald McCracken, who had been its head of global operations services; and Ronald Hogan, a former vice president who was responsible for new business implementation.
Also charged were Virginia Papa, who had been director of defined contribution servicing; Sandra Childs, who had overall responsibility for Putnam Fiduciary's compliance department; and Kevin Crain, who was responsible for its plan administration unit. All but Hogan were also managing directors of the company.
Putnam funds previously made full restitution of the approximately $4 million to Cardinal Health and fired the individuals involved in the alleged fraud.