WASHINGTON -- He was dragged from his car and beaten with a brick after confronting an investment-company superior about trading abuses in mutual funds, Peter Scannell told Congress yesterday.
His complaint about abuses was brushed aside by federal regulators but eventually helped lead to civil fraud charges against Boston fund giant Putnam Investments.
At the hearing where he testified yesterday, New York Attorney General Eliot Spitzer and Senator Peter Fitzgerald, an Illinois Republican and the head of a Senate panel, denounced what they called hidden and excessive fees that gouge millions of mutual fund investors. Spitzer also said it is unfair that mutual funds charge ordinary shareholders much higher fees than pension funds and other big investors.
Scannell said he met with hostility and a veiled threat from the Putnam manager and disinterest from investigators in the SEC's Boston office early last year. It took seven exchanges with his lawyer before the SEC staff met with him, he testified at the hearing of the Senate Governmental Affairs subcommittee. 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 later got a hearing from the office of Massachusetts Secretary of State William F. Galvin, which acted on his disclosures.
In the Putnam case, participants in the Boilermakers union's retirement fund were accused of engaging in market-timing trades in the funds, quick in-and-out trading to exploit price changes. In an example of favoritism, Putnam managers allowed the union to engage in the practice despite the fund company's policy prohibiting it, the regulators alleged. Scannell
said that a few days after confronting his supervisor, he was assaulted in February 2003 by a large man in a sweatshirt with "Boilermakers Local 5" written across the chest. The man referred to Scannell's working at Putnam and ordered him to shut up, he testified.