Nov 3, 2003

SEC joining Prudential hit: Market-timing charges loom Nov. 3, 2003 - A group of former Prudential Securities brokers face civil fraud charges from the Securities and Exchange Commission and state regulators this week, according to a source close to the probe. State regulators and the SEC plan also to file additional securities fraud charges against the company itself later this month involving allegations that the brokers made improper short-term mutual fund trades at the expense of other fund investors, the source said.

The charges would mark the latest effort to crack down on a form of trading that takes advantage of delays in the ways funds are priced. Most fund companies tell investors they will work to stop such trades, because, while legal, they can dilute returns for long-term shareholders.

Galvin and the SEC filed similar civil charges against Putnam Investments last week, claiming the Boston fund powerhouse allowed market timing among its funds. The charges led to an exodus of major pension investors, who have pulled more than $4 billion out of Putnam accounts so far.

BOSTON -- Lawrence J. Lasser is stepping down as chief executive of Putnam Investments in the wake of civil fraud allegations against the company and decisions by several big state pension funds to take money out of the firm's funds.
Embarrassed by state and federal accusations that fund managers at Putnam Investments used inside information to make almost $1 million, the company has promised to return to investors any gains made improperly. The shareholders of Marsh & McLennan, Putnam's parent, will probably foot the bill. That's what normally happens when companies are caught doing something they are not supposed to do.

Lawrence J. Lasser could repay fund shareholders out of his own pocket. After all, he runs the organization whose internal rules, prosecutors say, were so lax that fund managers were able to profit, undiscovered, at shareholders' expense for years. Believers in "the buck stops here" would say that Lasser should pay something. But hell is likely to go cold before Lasser makes such an offer. He has been a big believer in getting lots and lots of bucks to stop at his desk in recent years.

In the past five years, for example, Lasser has earned $5 million in salary and a nice, round $100 million in bonuses. He received restricted stock awards of approximately $22 million during those years. In addition, Lasser has exercised stock options worth approximately $12 million over the past five years. At the end of last year, he had $5.8 million in unexercised options.

There's more. Lasser signed a new employment contract in 1997 that earned him a special retirement benefit valued at $15 million, "in consideration for a noncompetition covenant and post-employment consulting arrangement," according to the company. The $15 million has been invested, so it is unclear what its value is now. Two years ago, Lasser amended this agreement and received a deferred special payment worth another $15 million that can be paid out in December 2005. That, too, has been invested, so its current value is unclear.

Add up the figures and you see that Lasser has pocketed $163 million. Oh, and one other thing: On his investments in private equity limited partnerships managed by Marsh or affiliated firms, Lasser is not required to pay a management fee.
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