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SEC to Examine Its Handling of Mutual Fund Tips

October 29, 2003|From Reuters

The Securities and Exchange Commission said Tuesday that it was reviewing its procedures for handling tips and complaints after two informants in the growing mutual fund scandals walked away from the agency dissatisfied and turned to state authorities.

On the treatment given by the SEC's Boston office to an informant in the Putnam Investments case, SEC Deputy Director of Enforcement Linda Thomsen told Reuters, "We're looking into this matter. We're going to figure out what happened."

The SEC and Massachusetts officials Tuesday accused Boston-based Putnam, the nation's fifth-largest mutual fund company, of securities fraud.

The SEC filed separate fraud charges against two former Putnam managers.

The Massachusetts case was based, in part, on information about a trading practice known as market timing involving Putnam investors brought to the attention of Secretary of the Commonwealth William Galvin by an informant, Peter Scannell.

Three unnamed informants provided much of the basis for a case brought last month by New York Atty. Gen. Eliot Spitzer against Canary Capital, a hedge fund also accused of market timing, said sources familiar with the matter.

Both Scannell and at least one of the Spitzer informants had first taken their stories to the SEC before approaching state officials.

But in both cases, the tipsters came away dissatisfied with the agency's response, the sources said.

The market-regulating SEC -- which oversees thousands of public corporations, brokerages and mutual funds -- receives close to 1,000 complaints and tips daily.

"With respect to complaints and tips generally, we take them very seriously," Thomsen said. "They are very important and we are looking at our procedures for handling those."

For instance, a tip was instrumental in the SEC's case charging former Putnam managers Justin Scott and Omid Kamshad with fraud in doing their own timing trades in Putnam funds -- a separate matter from the conduct Scannell knew about.

"This is one of those cases where I personally got a tip," said SEC Enforcement Division chief Stephen Cutler in an interview on TV business news channel CNBC.

An attorney for Scannell declined to comment.

The SEC, Spitzer and Galvin have been probing trading and brokerage issues concerning mutual funds for months.

SEC officials said Tuesday that their probe, coordinated closely with those of Spitzer and Galvin, was continuing.

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