SEC Settles With Two of Six Former Putnam Employees

The SEC settled with two of the six defendants in its two-year old case against six former officers of Putnam Fiduciary Trust Company, a Boston based transfer agent. The complaint, initially filed in 2006, alleged that the defendants’ violated Securities Act Section 17(a), Exchange Act Section 10(b) and Investment Company Act Sections 34(b) and 37 by defrauding a defined contribution plan client and a group of Putnam mutual funds of approximately $4 million.

Specifically, the complaint alleged that Putnam delayed by one day investing certain assets of Cardinal Health, Inc. in January 2001. When the markets rose the next day, Cardinal’s defined contribution plan lost nearly $4 million in possible gains. Rather than inform Cardinal of the error, the loss was split between that company and other fund clients. Cardinal was charged $1 million of the loss and about $3 million was improperly shifted to certain Putnam mutual funds through a variety of fraudulent and illegal actions. In addition, some of the defendants took steps to cover up the distribution of the losses. SEC v. Durgarian, Case No. 05-12618 (D. Mass. Jan. 3 2006).

The six defendants named in the complaint are: 1) Karnig Durgarian, former senior managing director and chief of operations of PFTC, as well as principal executive officer of certain Putnam mutual funds from 2002 through 2004; 2) Donald McCracken, former managing director and head of global operations services of Putnam; 3) Virginia Papa, former managing director and director of defined contribution servicing; 4) Sandra Childs, a former managing director who had overall responsibility for Putnam’s compliance department; 5) Kevin Crain, a managing director who had responsibility for Putnam’s plan administrator; and 6) Ronald Hogan, former vice-president who had responsibility for new business implementation at PFTC.

On Friday, defendants Karnig Durgarian and Ronald Hogan settled. Each consented to the entry of a permanent injunction prohibiting future violations of the sections alleged in the complaint. In addition, Karnig Durgarian consented to the entry of an order imposing a civil penalty of $100,000 while Ronald Hogan agreed to the entry of an order imposing a $35,000 penalty.

Previously, the court dismissed the Commission’s complaint as to defendants Virginia Page, Sandra Childs and Kevin Crain. The SEC has appealed that decision to the First Circuit Court of Appeals where the case is pending.

A Litigated Insider Trading Case Against An Audit Committee Member Settles

The Commission settled another insider trading case on Friday, SEC v. Erickson, Civil Action No. 03-07-CV-0254 (N.D. Tex. Filed Feb. 7, 2007). This action has been in litigation since early 2007. It claimed that Donald Erickson, a former audit committee chairman and director of Magnum Hunter Resources, Inc., traded on inside information. Specifically, the complaint alleged that Magnum Hunter was up for sale. During negotiations to be acquired by Cimarex, Mr. Erickson was regularly briefed about the deal. He also participated in key decisions regarding the transaction as it was being negotiated.

Two trading days before the mid-January 2005 announcement of the merger, and the day after he attended a board meeting, Mr. Erickson exercised call options and acquired 30,000 shares of MHR stock. The call options, according to the Commission, were purchased and exercised while Mr. Erickson was in possession of material non-public information about Magnum Hunter’s merger negotiations.

To settle the case, Mr. Erickson consented to the entry of a permanent injunction which prohibits future violations of Sections 10(b) and 16(a) (for failing to file the required forms regarding the purchase of the options) and the pertinent rules under each section. He also agreed to disgorge $46,200 in trading profits and pay $11,399.67 in prejudgment interest. The Court imposed a civil penalty on Mr. Erickson of $46,200.