The investment firm hopes the resignation will stanch customer departures.
BOSTON – Putnam Investments Chief Executive Lawrence Lasser became the first big casualty of the mutual fund market timing scandal Monday. Now the embattled firm hopes his resignation will stanch the flow of money from its funds and help restore investors’ trust.
Boston-based Putnam, accused by state and federal regulators last week of allegedly turning a blind eye to market timing trades that violated company policy, named industry veteran Charles “Ed” Haldeman to replace Lasser. It also shook up other top positions and retained Barry Barbash, a former top Securities and Exchange Commission official, to review its policies.
Meanwhile, on a day when regulators testified before a Senate subcommittee on the widening mutual fund scandal, the Massachusetts Securities Division was prepared to file a complaint as soon as Tuesday against five former brokers for improper market timing trades at Prudential Securities’ Boston office, according to a source familiar with the matter.
The source, speaking on condition of anonymity, said Massachusetts authorities were also prepared to name Prudential, a unit of Wachovia Corp., in a complaint alleging fraud and failure to oversee employees. But the source said state securities regulators would wait to include the company until the Securities and Exchange Commission is ready to make public its civil case, alleging similar misconduct, which is not expected for several weeks.
Prudential spokesman Jim Gorman said the company was cooperating but had no further comment.
Lasser’s resignation came after public pension funds announced plans to pull more than $4 billion out of Putnam, which lists $272 billion in assets under management. On Monday, fund research firm Morningstar Inc. advised investors not to make new investments in Putnam mutual funds, but did not advise investors to sell shares they already own.
Jeffrey Greenberg, CEO of Putnam parent company Marsh & McLennan, met in Boston on Monday with state Treasurer Tim Cahill, who oversees the state pension fund that fired Putnam as the manager of $1.7 billion in investments last week.
Afterward, Greenberg declined to tell reporters why Lasser was no longer CEO.
“I’ve answered all the questions that we’re here to answer. This is really a meeting that we’re delighted to have with the treasurer, and glad he could take the time,” he said before heading off to address Putnam employees.
Cahill told reporters that company executives “made a very compelling case that we should reconsider (the decision to divest the pension fund’s Putnam investments). … What we told them is they would certainly have every opportunity going forward, once we’re comfortable that the changes that have been made and some of the client issues have been dealt with to our satisfaction.”
Lasser led Putnam since 1985, growing it from a boutique investment firm into a major retirement fund manager and the No. 5 mutual company. Putnam bet aggressively on technology and blew away many competitors in the 1990s, but was hit hard by the technology downtur. It must now reach out to investors who feel both betrayed by the scandal and irked by their funds’ recent underperformance.
A Putnam spokeswoman has said Lasser was told in 2000 that some employees made market timing trades in mutual funds but was assured the problem had been addressed. But in their complaint last week, Massachusetts regulators alleged that six employees continued the practice until September of this year despite company warnings against it.
In a letter to Putnam investors last week, Lasser outlined steps the company had taken and said “while we strongly believe that our actions were not fraudulent, we recognize the public perception of the facts and the damage to our reputation.”
“We are embarrassed and feel terrible about this,” Lasser wrote.
Shares of Marsh & McLennan rallied nearly 5 percent Monday on news of Lasser’s departure, rising $2.00 to $44.75 in afternoon trading on the New York Stock Exchange after falling sharply last week.
Russ Kinnel, director of fund research at Morningstar, said Lasser’s hard-charging style served the company well during the boom, but its vulnerabilities became apparent during its recent financial and legal challenges.
“My own view is more positive now that he’s gone,” Kinnel said. “While he did build up the business, he also was the one responsible for the corporate culture that seemed off the mark. It really wasn’t very functional, as the bear market proved. They were running too hard, too aggressively. They let the funds stay open too long.”
Lasser earned more than $100 million in bonuses during the past five years. According to a 1997 company filing, he is entitled to a special retirement benefit that was valued in at the time at $15 million “except in the case of termination for cause.”
Marsh & McLennan spokeswoman Barbara Perlmutter declined to comment on specifics of any severance package, but said “our advisers are reviewing its terms to determine our obligations to him.”
Haldeman has been at Putnam, as co-head of investments, for barely a year after three years at Delaware Investments, a company that was struggling with performance problems when he took over in 2000 but has since stemmed outflows.
In a statement released by Putnam, Haldeman said “We are taking the actions necessary to address the issues we face and win back the confidence of investors.”
Putnam did not immediately respond to a request for comment from Lasser or further comment from Haldeman.
AP-ES-11-03-03 1725EST
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