In a hearing before a Senate subcommittee considering legislation already passed by the House that aims to clean up the mutual fund industry, heard from one former trader who claims he was beaten with a brick after shining the light on abuses within his firm, Putnam Investments.
Putnam has slipped from No. 5 to No. 6 on the list of top brokerage firms since state and federal regulators charged it with mutual fund trading abuses.
Peter Scannell told members of the Senate Governmental Affairs subcommittee and New York Attorney General Eliot Spitzer that he was dragged from his car and beaten after a confrontation with a Putnam superior about trading abuses. He described the hour between 3 p.m. and 4 p.m. as the "Boilermaker hour" when the company would go into a frenzy of trading on behalf of the Boilermakers union's retirement fund. The traders were accused of making market-timing trades in the funds, with quick in-and-out trading to maximize price changes, the New York Times reported.
Scannell said he was beaten in February 2003 by a man wearing a "Boilermakers Local 5" sweatshirt, who referenced that Scannell worked at Putnam and told him to shut up, the Times reported, adding that the union couldn’t be reached for comment.
He said he was unable to get the SEC’s attention with his claims. I "could not believe that the SEC was not acting on what I believed any reasonable regulator would consider being compelling evidence," Scannell said. He was later able to get the Massachusetts Secretary of State to believe his story, which led to charges from the SEC.
Putnam agreed to a partial settlement with the SEC in November, whereby the company agreed to changes -- some of which the company had already begun to implement -- and a process for investors who were harmed to recoup losses. Putnam had already pledged to make restitution. The company neither admitted to nor denied wrongdoing in the accord, the Times reported.
Spitzer and Sen. Peter Fitzgerald, R-IL, chair of the subcommittee, were critical of what they called hidden and excessive fees that hurt millions of mutual fund investors. Spitzer added that it isn’t fair to charge small shareholders much higher fees than those charged to pension funds and other major investors, the Times reported.
Fitzgerald called the fund industry "the world's largest skimming operation ... a trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice of the nation's household, college and retirement savings."