NEW YORK -- Putnam Investments was not aware of the seriousness of the improper trading by managers that led to civil fraud charges against the sixth-biggest US mutual fund company, said George Putnam III, president of the funds' board of trustees since 2000.
"Putnam management at the time didn't understand the seriousness of the problem, so we all have to change the culture," said Putnam, 52, in a phone interview from his office in Boston. His grandfather founded the firm.
The Securities and Exchange Commission will outline new rules for fund boards today. One of the changes proposed to improve oversight would require boards to have an independent chairman.
Putnam Investments, a unit of Marsh & McLennan Cos., and two former money managers were charged by Massachusetts regulators and the SEC with improper fund trading. The complaints allege the managers took advantage of inside knowledge about the international funds they managed to generate quick profits for themselves at the expense of their customers, Massachusetts Secretary of the Commonwealth William Galvin told reporters on Oct. 28.
Executives at Putnam Investments knew about the trading and failed to stop it, Galvin said.
"The biggest problem from a trustee point of view was that we weren't informed of the trading by the managers," said Putnam, president of New Generation Research Inc. and publisher of The Turnaround Letter, which advises institutional investors on distressed companies.
"It's hard seeing your name mentioned in a whole lot of negative newspaper articles," Putnam said. "I've spent a lot of time looking at turnarounds and they [Putnam] have a lot of the elements for a successful turnaround."
Investors have increased their withdrawals from Putnam Investments since Oct. 28. The company suffered about $13 billion of client outflows from its funds in November, according to Financial Research Corp. That almost exceeded the entire amount of withdrawals in 2002, when customers yanked $14.3 billion from the company.
Putnam Investments has replaced chief executive Lawrence J. Lasser with Charles "Ed" Haldeman and revealed plans to charge a 2 percent fee for fund shares held less than six days to deter short-term trading.