Putnam Investments
Sightings from The Catbird Seat
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February 1, 2007
Marsh & McLennan to sell
Putnam for $3.9 billion
NEW YORK (Reuters) - Insurance broker Marsh & McLennan Companies Inc. (NYSE: MMC - news) said on Thursday that it would sell its troubled money manager, Putnam Investments, to a unit of Canada's Power Financial Corp. (Toronto: PWF.TO - news). for $3.9 billion.
The sale price was in line with recent press reports, but toward the lower end of initial estimates of how much the scandal-ridden asset manager would fetch when Marsh & McLennan said in September that it was considering a sale.
Montreal-based Power Financial, which controls insurer Great-West Lifeco Inc. (Toronto: GWO.TO - news) and IGM Financial Inc. (Toronto: IGM.TO - news), Canada's largest mutual fund company, had said last month that it was in talks to acquire Putnam.
Analysts have said Power Financial would gain a key foothold in the U.S. money management business. For Marsh, the sale followed longtime pressure from investors to shed the underperforming unit.
Putnam has suffered from rising redemptions and poor performance by its top funds, that raised doubts among some analysts whether a deal would go through at all.
Both boards have approved the transaction, and they expect it to close in the middle of this year.
Putnam is one of Marsh & McLennan's four major divisions. The others are the Marsh insurance brokerage unit, risk consulting unit Kroll Inc. and Mercer, which handles human resources and provides financial services to companies.
Putnam's Boston neighbor, MFS Investment Management, was also put up for sale in September but its Canadian parent, Sun Life Financial Inc. (Toronto: SLF.TO - news), said just a month later that it had decided not to sell the unit after a strategic review.
Boston-based Financial Research Corp (FRC) said that Putnam again saw the heaviest redemptions in long-term stock and bond mutual funds, losing $1 billion in November. It lost $13.8 billion in assets in 2006 till end-November, FRC said.
Power Financial said its Great-West Lifeco Inc. unit would own the asset manager.
http://news.yahoo.com/s/nm/20070201/bs_nm/putnam_dc_5
January 3, 2006
SEC charges 6 ex-Putnam officers
Officers alleged to have partaken in a $4M fraud scheme;
company will not face SEC action.
WASHINGTON (Reuters) - Six former officers of Putnam Fiduciary Trust, a unit of mutual funds group Putnam Investments, have been charged by regulators over an alleged $4 million fraud scheme and attempted cover-up beginning in 2001, officials said Tuesday.
But the Securities and Exchange Commission said it would not bring an enforcement action against the company itself "because of its swift, extensive and extraordinary cooperation in the commission's investigation."
Putnam Fiduciary is a Boston-based transfer agent owned by Putnam Investments, the mutual funds family controlled by financial group Marsh & McLennan.
The SEC charges versus the ex-officers come as Putnam Investments, the nation's tenth-largest mutual fund family, is recovering from trading scandals beginning in fall 2003 that hurt it and others in the $8.8 trillion mutual fund industry.
Putnam Investments Chief Executive Ed Haldeman said that when the problem at Putnam Fiduciary came to light in 2004, the parent company quickly reported it to regulators, auditors and trustees; repaid harmed clients roughly $4 million; terminated employees involved and disclosed the problem to clients.
In addition, he said in a statement, Putnam investigated on its own and made internal reforms.
The SEC alleged in U.S. District Court in Boston that Putnam Fiduciary in January 2001 was a day late in investing certain assets of health care services and products group Cardinal Health Inc., which was at the time a defined- contribution plan client of the company.
The delay cost Cardinal's defined-contribution plan to miss out on nearly $4 million in market gains, the SEC said.
"Rather than inform Cardinal Health of the one-day delay or compensate their client for the missed trading gain, the defendants decided to improperly shift approximately $3 million of the costs of the delay to shareholders of certain Putnam mutual funds through deception, illegal trade reversals, and accounting machinations," the SEC alleged in court.
The SEC said it charged the following former Putnam Fiduciary employees: operations chief Karnig Durgarian, global operations services head Donald McCracken, defined contribution servicing director Virginia Papa, managing directors Sandra Childs and Kevin Crain, and vice-president Ronald Hogan.
The SEC also charged that the defendants improperly allowed Cardinal's plan to bear about $1 million of the loss without disclosing this to Cardinal, and that Durgarian, Papa, Childs, and Crain tried to cover up the wrongful conduct.
"Ms. Papa has not misled any client, manipulated any record, or covered up anything. She looks forward to vindication in court," said Michael Connolly, Papa's attorney.
Gary Matsko, McCracken's attorney, said his client has cooperated fully with the SEC. "He intends to defend the charges. He maintains he hasn't done anything wrong," he said.
Anthony Mirenda, Crain's attorney, said his client "will fight this to clear his name because he did not participate in any fraud." Mirenda said Crain drew the attention of internal auditors to the problem and cooperated with authorities.
Attorneys for Durgarian and Hogan could not be reached for comment. John Sten, attorney for Childs, declined to comment.
In not charging Putnam Fiduciary, the SEC said it took into account the company's prompt self-reporting, its internal probe and other steps like those outlined in the precedent-setting 2001 Seaboard case. That decision set standards for how to cooperate with the SEC and held out the possibility of leniency for companies that meet the standards.
In the Putnam Fiduciary case, "the commission has sent a strong signal that should make it easier for a company to decide whether to self-report misconduct," said SEC Deputy Enforcement Director Walter Ricciardi in an interview.
December 08, 2003
Pension Funds File Shareholder Proposal to Change Marsh & McLennan Board
Multi-Billion Dollar Putnam Scandal
and Weak Oversight To Blame
WASHINGTON — Four of the nation's most powerful public pension funds, in a heightened response to the Putnam mutual fund scandal, announced they are using an anticipated Securities and Exchange Commission (SEC) rule to more easily nominate and elect better leadership on Putnam's parent company board.
The response comes in the form of a shareholder proposal that seeks access to the proxy to nominate and elect directors not hand-picked by the company. Marsh & McLennan Companies Inc. (NYSE: MMC), which is the parent company of Putnam Mutual Funds, is the target of the resolution for its failure to properly control its money management business and for its severe lack of independent board leadership.
Filing the action are AFSCME Employees Pension Plan, New York State Common Retirement Fund, California Public Employees' Retirement System and the California State Teachers' Retirement System. Together they hold 6.85 million shares, worth $306,000,000 or about 1.3 percent of the company.
"Marsh & McLennan deserves to be the first company in U.S. history to face a binding proxy access proposal because of its gross failure to have proper controls that could have prevented the Putnam disaster," said Gerald W. McEntee, AFSCME Employees Pension Plan Chairman. "It is tragic that the board at Marsh & McLennan lacked the independence needed, and today continues to be influenced more by its insiders than the needs of its shareholders. There is no question that shareholders will support the idea of electing a truly independent director to the board if given the opportunity through our shareholder resolution."
"Investors have pulled more than $32 billion dollars in assets out of Marsh's Putnam subsidiary due to its involvement in this terrible mutual fund scandal, and Marsh's stock price is down about 10 percent," added Alan G. Hevesi, New York State Comptroller and sole trustee of the New York State Common Retirement Fund. "I can't think of a stronger case worthy of shareholder involvement, and I have no doubt, that given the chance, shareholders will respond favorably to our initiative."
The problems of Putnam and Marsh & McLennan have been continuously mounting since the trade scandal broke several months ago, said Sean Harrigan, President of CalPERS. "Shareholders do not have any interest in using the proxy statement process to nominate a director unless the problems are so severe they are Enron-esque. Putnam and Marsh & McLennan's problems are in that category," he said.
Lack of independence and excessive compensation are also reasons for filing the proposal, he said. "The excessive compensation received by and promised to Lawrence Lasser is outrageous," he added. Lasser was fired as Putnam's CEO and pushed off the Marsh & McLennan board, but may collect an estimated $89 million in severance, in addition to having received salary, bonuses, stock options, restricted shares and retirement pay packages worth $163 million over the last five years. "This tells all of us that this board is more concerned about its friends than its owners," he said.
Jack Ehnes, Chief Executive Officer of CalSTRS said the sponsors are also concerned about the lack of independent board membership. "This board isn't meeting the needs of shareholders. Now it is time for shareholders to do more than send a message of our dissatisfaction. We must be allowed to use the same process that the company does to elect truly independent directors, who will listen to the shareholders--the real owners of the corporation."
The resolution will appear on the proxy if the SEC approves the final regulations regarding shareholder access to the proxy next month. The SEC allows early filing of shareholder resolutions regarding proxy access in anticipation of the regulations' issuance.
###
American Federation of State, County
and Municipal Employees, AFL-CIO
1625 L Street, N.W. Washington, D.C. 20036-5687
Telephone (202) 429-1145
Fax (202) 429-1120
http://www.afscme.org/press/6860.cfm
November 20, 2003
The guy who blew the whistle on Putnam
By Jayne O’Donnell, USA Today
WEYMOUTH, Mass - When he started working at Putnam Investment’s Quincy, Mass. call center in March 2000, Peter Scannell had only a layman’s knowledge of how a mutual fund company works.
But he knew from his days working at a casino in Lake Tahoe how to tell the good guys from the bad. And it wasn’t long before Scannell decided the good guys weren’t necessarily the ones who signed his checks.
Scannell caught onto efforts by outside investors, first from an electrical trades union and later a boilermakers union, to make rapid trades in and out of Putnam (Parent MMC) funds - a practice known as market timing.
Alarmed, Scannell blew the whistle to the Securities and Exchange Commission, which didn’t act, and then to Massachusetts regulators, who did. What they heard led to state civil fraud charges against Putnam, the resignation of its CEO, Lawrence Lasser, and the withdrawal of more than $20 billion from its funds.
It also helped train a spotlight on market timing, which has ensnared eight of the USA’s mutual fund companies in probes and charges.
“This would not have started without him,” says Matthew Nestor, Massachusetts’ director of securities. “We owe him a debt of gratitude.”
In five hours of interviews over two days, Scannell, 47, said he turned in the big guys to help the little guys everywhere. Mutual fund and retirement plan participants who watched their holdings plummet while others got rich. In retaliation, he says, he was attacked by a brick-wielding assailant allegedly wearing a boilermakers union sweatshirt and is being trailed almost constantly....
The Massachusetts U.S. Attorney’s office is investigating possible criminal securities fraud violations at Putnam, relating to market-timed trades by its managers. Scannell met for two hours Tuesday with the office. The FBI is also investigating, say two people involved in the matter....
Last Jan. 30, Scannell says he told his bosses he would no longer accept transfers from known market timers. The next day, he took home the information he had compiled because he planned to alert securities regulators. “I drove home looking over my shoulder,” Scannell wrote in the report....
The guy who blew the whistle on Putnam
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For more, GO TO > > > www.senate.gov/~govt-aff/_files/012704scannell.pdf
March 23, 2005
Citigroup, Putnam Pay
SEC Fines Over Fund
In three unrelated cases, federal regulators fined Citigroup Inc. and Putnam Investments $20 million and $40 million respectively and a smaller brokerage firm $100,000 to resolve allegations that they concealed from customers the fact that brokers were paid to recommend certain mutual funds, creating a conflict of interest.
The Securities and Exchange Commission announced the separate settlements Wednesday with Citigroup, the biggest U.S. financial institution; Putman, the seventh-largest mutual fund company, and brokerage Capital Analysts Inc.
Citigroup, Capital Analysts and Putnam, a unit of Marsh & McLennan Cos., neither admitted nor denied wrongdoing as part of the agreements....
November 1, 2004
The Secret World Of Marsh Mac
By Marcia Vickers, Business Week
CEO Jeff Greenberg presides over the arrogant and tight-lipped culture of Marsh & McLennan, where conflicts of interest abound. There's more trouble coming for the world's largest insurance broker.
When Jeffrey W. Greenberg took the helm of notoriously secretive Marsh & McLennan Cos. (MMC ), a $12 billion financial-services company, on Nov. 18, 1999, analysts were happily buzzing that Greenberg was a gregarious, outgoing executive. The word on Wall Street was that he would raise the profile of Marsh Mac with more public appearances and open communication than his tightlipped predecessor, A.J.C. "Ian" Smith.
They couldn't have been more wrong. In the past four years, Greenberg sightings have been scarce. The company, true to its secretive history, became even more cloistered. But on Oct. 14, Marsh & McLennan was forced into a harsh public spotlight when New York Attorney General Eliot Spitzer charged its insurance brokerage with fraud. In a civil complaint filed in New York State Supreme Court, Spitzer alleges that the company engaged in bid-rigging, price-fixing, and accepting payoffs from insurance companies.
Marsh & McLennan, the world's largest insurance broker, is paid millions annually to manage clients' risks and crises. Now it's having epic problems of the same nature itself.
In a three-month investigation, BusinessWeek spoke with some 50 former and current MMC employees, insurance industry executives, and investigators -- and discovered that the firm's problems may well go far beyond Spitzer's initial charges.
BusinessWeek has learned that MMC and its executives could face a raft of further legal and regulatory problems. Spitzer's office is mulling criminal charges against several execs connected with the insurance brokering scandal. It is also looking into whether Mercer, MMC's pension-consulting arm, and Putnam Investments, MMC's mutual-fund company, push clients into buying Marsh insurance products.
As part of an industry-wide sweep, the Securities & Exchange Commission is probing Mercer's alleged "pay to play" practices of requiring payoffs from money managers who want it to recommend them to pension clients. At the same time regulators are examining payments Putnam and other mutual-fund outfits make to companies to ensure that their funds are featured in corporate 401(k) plans.
As if that's not enough, several class actions have sprung up -- at least one regarding the alleged fraud at Marsh Inc., as the insurance brokerage is known, and others involving Putnam.
Already, the legal onslaught is taking a toll. On Oct. 19, Moody's Investors Service downgraded the firm's debt, citing concerns about "financial consequences" arising from Spitzer's lawsuit. And fear that some of MMC's revenue streams could dry up has knocked down its share price. In the four trading days following Spitzer's Oct. 14 announcement, the stock plummeted 48%, wiping out $11.5 billion in market cap.
At the center of the storm stands Jeff Greenberg, 53. If you ask almost anyone about him, you'll hear that he is smart as a whip, incredibly knowledgeable about the insurance business, well-spoken, and polished. Much like his father, Maurice R. "Hank" Greenberg, 79, the legendarily hard-charging chairman and CEO of insurer American International Group Inc. (AIG ), he has a history of being opportunistic when it comes to scoring profits for his company. Even now, his defenders insist that he inherited serious problems, particularly in the brokerage and mutual funds businesses, when he moved into the top slot....
The firm's obsessive focus on secrecy helps keep any misdeeds under wraps, say the sources. "Some companies have a culture based on kickbacks and undisclosed financial arrangements, and their people are forced to remain silent about wrongdoing," says Edward A.H. Siedle, a former Putnam compliance director and SEC official who now heads the Center for Investment Management Investigations in Ocean Ridge, Fla., which looks into pension fraud....
The day after Spitzer announced his charges, MMC's board expressed full confidence in the CEO. That's no surprise: Greenberg chairs the board, which Nell Minow, editor and corporate governance expert at the Corporate Library, says is fiercely loyal and "rife with cronyism." Six of its 16 members are directly involved in running Marsh Mac or one of its subsidiaries, says Glass Lewis & Co., a San Francisco proxy-research firm.
The board may be compelled to take action against top execs if enforcers now circling the company are able to force fundamental changes in the way it does business. Analysts and other experts say that could damage the company's financial health.
"If you eliminate all the questionable payments at Marsh & McLennan, you eliminate half of their profits," says a former executive. Spitzer's complaint says contingent commissions -- lucrative payments Marsh receives for steering unsuspecting clients to certain insurers -- alone amount to $800 million a year, or about half the insurance brokers' 2003 net income....
"Throwing the Quote"
Perhaps William Gilman, Marsh Global Broking's executive director of marketing and a managing director, was doing the worrying. Gilman, in his 60s, is a larger-than-life character who some call Kill Bill, after the Quentin Tarantino movies. The nickname could also have something to do with an internal AIG memo about bidding for business that was an exhibit in the Spitzer case: "Per W. Gilman -- get to right number [regarding a bid] or 'we'll kill you."' Says a former colleague: "He's the kind of guy who stubs a cigarette out in your coffee cup."
Gilman, says Spitzer's complaints, strictly enforced the system of rigged bids and payoffs from insurers. He also rated insurers by how much they paid Marsh in contingent commissions. A September, 2003, e-mail from his office released by Spitzer reads: "We need to place our business in 2004 with those that...pay us the most."...
On Oct. 19, MMC suspended Gilman and four others.
Folks dealing with Marsh were supposed to abide by "Billy's Rules" -- a playbook Gilman devised for insurers, according to someone familiar with the company. The rules were: 1) No "no's" (meaning Gilman should never be told "no" about any predetermined Marsh arrangement). 2) Don't get stupid (never question Marsh's schemes). 3) If you get stupid, we will broom your ass. 4) Never think you own your business, you only rent your business. Marsh owns your business. "Billy's Rules," emblazoned on an office plaque, hung in Gilman's office.
Gilman, according to the complaint, oversaw Marsh's "throwing-the-quote" scheme, whereby some insurers were told to quote artificially high bids for business. Several times, Gilman refused to allow AIG to relay competitive bids to clients, according to Spitzer's complaint, warning AIG that "it would lose its entire book of business with Marsh" if it didn't provide higher price quotes than the insurer Marsh favored...
The phony quotes were often referred to as "throwaway quotes," "protective quotes," "backup quotes," or "B quotes," says the complaint. In return, according to Spitzer, Marsh protected AIG and other firms that played ball when it was their turn to win. AIG declined to comment.
Gilman also staged what he called "drive-bys" -- in which insurers were asked to attend presentations for prospective clients even when they knew they had no chance of snagging the deal, according to Spitzer. A regional manager for Munich-American RiskPartners, a division of American Reinsurance, who was so frustrated by constant requests from Marsh for "live bodies" to attend drive-bys that he wrote in an all-caps e-mail: "We don't have the staff to attend meetings just for the sake of being a body. While you may need a live body, we need a live opportunity."
Gilman may have enjoyed such power because Marsh already dominated insurance brokering. By the late '90s, Marsh had cornered 40% of the global business thanks to aggressive acquisitions. Marsh's grip tightened when it centralized control of broking activities in New York. Analysts say Marsh's dominance allows it to control pricing, the way insurance products are structured, and how premiums and payouts are disbursed.
"They have both their clients and insurers by the cojones," says a competitor.
But now it's MMC's top brass who are squirming. Being in the spotlight is highly uncomfortable for MMC -- long known as a patrician, white-shoe firm with an air so understated and secretive that at least one former exec likened it to working at the CIA. Its ranks have included Ambassador L. Paul Bremer III, former Presidential Envoy to Iraq, who recently ran MMC's crisis-consulting business; Stephen Friedman, President George W. Bush's top economic adviser and former Goldman, Sachs & Co. (GS ) co-chairman, who was an MMC senior principal; Craig Stapleton, the husband of George W. Bush's cousin Dorothy, who was an MMC president; and Lord Lang of Monkton, a former British Member of Parliament who still sits on the board....
"I'd Love to Talk...But"
MMC certainly goes to extraordinary lengths to ensure loyalty. A former Putnam executive recalls being grilled by a company psychiatrist in a hotel room for hours during a job interview. Says the former exec: "Everyone has a Dr. [James] Terry story. He would ask questions like: 'What's the worst thing that ever happened to you?' 'What are your views on religion?' 'Who do you vote for?' They tell you they're looking for any signs of malfeasance or criminality. But they're also looking for people who will fit in, lockstep, at the company." An MMC spokeswoman claims that using a psychiatrist for screening purposes is "industry practice." Terry could not be reached for comment.
Once they're in, most people who join MMC's upper echelons must sign binding noncompete agreements, say both current and former employees. "Each time you exercise stock options, you have to sign a new one," says one former exec. MMC calls this, "a generally accepted practice." Employees who leave MMC and then disparage it in public risk losing any deferred compensation to which they are entitled.
One former MMC exec told BusinessWeek: "Gee, I'd love to talk to you. There's a lot to say. But they've got my money."
Since moving to rival broker Willis Group Holdings Ltd. (WSH ), a former Marsh exec says he has been spied on by a private investigator who he suspects was Kroll Inc., which MMC bought in July for $1.9 billion. He says he believes MMC wants to ensure that former employees are not using its proprietary information. MMC would not comment without specific details. Another former exec says MMC constantly monitored internal phone calls. MMC says it is unaware of this....
And despite the unfolding scandals, most industry players still seem to respect Greenberg. He certainly got high marks in his early days as MMC CEO for his handling of the aftermath of the September 11 World Trade Center attacks. Three years earlier, Marsh had leased floors 93 to 100 in Tower One, and 294 MMC employees -- mostly salesmen, secretaries, and analysts in their 20s and 30s -- lost their lives after the first airplane hit. At services, Greenberg spoke movingly about the makeshift memorial that had occupied an entire wall next to the cafeteria at MMC's Sixth Avenue headquarters.
After Andrew
Still, just days after September 11, Greenberg and top MMC execs met to figure out how to profit from the disaster. They formed a subsidiary -- Axis Specialty Ltd. -- to sell insurance to corporate customers at three or four times the rates before September 11...
For some industry players the move recalled what Greenberg did in 1992 after Hurricane Andrew slammed into South Florida and wiped out some $15 billion worth of property. Jeff, who was working for dad at AIG, sent out an internal memo stating: "This is an opportunity to get price increases now."
It was leaked to the press, which had a field day -- with one newspaper branding him "a vulture." The memo moved Ralph Nader to complain and Florida regulators to freeze rates....
When Jeff was working under his father in the early '90s, heading up AIG's domestic brokerage group, Marsh sources say Hank raked him over the coals at a meeting in front of top executives.
Hank, they say, had ordered Jeff to deal with a personnel issue, but Jeff had dragged his feet. Says one: "Hank started yelling at Jeff in front of everyone: 'You either fix your management problem, or I'll fix mine!"'
But the coup de grace came in 1995 when Hank abruptly promoted Jeff's younger, less experienced brother Evan, making them equals in AIG's hierarchy. Two weeks later, Jeff left.
Evan, 49, is a college dropout and nonconformist who, by his own admission, had a bit of a troubled youth. But he had a knack for the insurance business and rose quickly at AIG. Unlike Jeff, Evan is one of the few people who stand up to his father. "Evan's scrappy -- a yeller," says an insurance industry veteran....
But in 2000, Evan also resigned from AIG. He now heads Ace Ltd. (ACE), a Bermuda company named in Spitzer's complaint -- along with AIG -- as one of those involved in Marsh's alleged bid-rigging and price-fixing schemes.
Months after exiting AIG, Jeff landed at Marsh & McLennan, where he had worked as a broker in the mid-'70s. As a partner in MMC Capital, the firm's risk-capital unit, he excelled at building MMC's Trident Funds, which invested billions in various insurance entities and real estate, and hoisted himself onto the fast track. He was determined "to show up his dad and brother," says a source familiar with the family.
At Marsh Mac, Jeff was able to take advantage of the Greenberg name: Then-CEO and Chairman Smith -- an old acquaintance of Hank's -- was Jeff's personal mentor. Jeff was named chairman and chief executive of MMC Capital in 1996. By the beginning of 1999, he had been promoted to president of Marsh & McClennan. And by the end of that year, he was CEO. He was elected chairman in May, 2000.
Even if Greenberg did inherit the Marsh Mac mess, he's under fire for how he handled it. "Despite seeming like a hero for ousting [former Putnam CEO Lawrence J. ] Lasser and moving toward cleaning up Putnam, the truth is, Greenberg didn't address things until he absolutely had to," says a former colleague.
In November, 2003, after Putnam was slapped with a securities-fraud charge, longtime CEO Lasser, 61, was forced to resign. Regulators alleged that company brass had been aware of illegal trading in Putnam funds since 2000....
A Frustrating Process
In the past year, Putnam has lost some $70 billion in assets. Recently, several pension funds, including CalPERS, the California Public Employees' Retirement System, agreed to let Putnam compete for its business, but with stipulations: Putnam must consider pruning executive pay and ramp up financial disclosure....
But governance gurus still aren't happy with MMC or Greenberg. The Corporate Library says the company still awards its execs excessive compensation. In 2003 it paid an aggregate $60 million to its top five officers, vs. an average $21 million at other large financial companies, according to Glass Lewis.
MMC says: "Our independent directors and outside consultants set compensation." This past year, several large pension funds joined forces to propel an independent director, Zachary W. Carter, a lawyer, onto the board.
Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County & Municipal Employees, says it was a slow-moving and frustrating process: "Jeff thought he knew what was right, and he wasn't going to let anyone rock the boat."...
Earlier this year Greenberg asked mentor Smith, 69, to come out of retirement to help him. Insiders say Greenberg was intimidated by Lasser and needed Smith to negotiate with the former Putnam CEO. Smith, who has an office close to Greenberg's, was named chairman of Putnam. Greenberg also promoted Steven Spiegel, Lasser's right-hand man, to vice-chairman of Putnam....
Some of the bad stuff may have had to do with Putnam funds being pushed by Mercer, Marsh Mac's pension-consulting arm. Mercer was long considered a sleepy, less profitable outpost of the Marsh kingdom. Then, say insiders, in the mid-'90s it came under pressure to turn bigger profits. That's when it started offering pricey conferences for money managers at $50,000 to $60,000 a pop.
"If you don't attend those, it's nearly impossible to get on Mercer's list to manage pension money," says Jack Silver, a former trustee at Chicago's teachers' pension fund. MMC denies this. The SEC is investigating these allegations. And Spitzer will likely look into whether Putnam pushes Marsh-brokered variable annuity products onto investors.
"There's no disclosure about this conflict to Putnam clients," says Selva Ozelli, a securities lawyer close to the investigation. There could also be an investigation into how Marsh, allegedly slow to pay out premiums, profits from the float.
That means deepening troubles for Greenberg, who some critics say has done far too little to shore up MMC's reputation over the past year.
"Print it, post it, and pray -- it seems as if that's all Greenberg's done when it comes to ethics," says Patrick McGurn, special counsel at Institutional Shareholder Services Inc., a corporate governance consultant. Until now, say analysts, Greenberg's main focus has been on acquiring more companies. Now he's forced to deal with spreading legal woes and a public-relations nightmare.
Says David D. Brown IV, Spitzer's investment protection chief: "We're really just at the beginning here. We're pursuing a number of leads and will follow them where they take us."
In an Oct. 15 press release Greenberg announced that MMC was appointing a private investigator to look into the alleged insurance broker fraud. It's a move some might have applauded, except for one thing: He gave the job to the head of MMC's Kroll -- who's now the head of Marsh.
July 6, 2004
SEC eyeing fund payments to 401(k)s
Regulators want to know if firms
pay for shelf space
By Kathie O’Donnell, CBS MarketWatch
BOSTON - The Securities and Exchange Commission Tuesday said it’s looking into payments that mutual funds make to 401(k) plans to determine what use is made of them.
Fidelity Investments, T. Rowe Price Group Inc., and Putnam Investments, a unit of Marsh & McLennan Cos. (MMC) were among firms that received questionnaires from the SEC which is examining payments that funds and their advisers make to 401(k) plans, consultants and plan platforms....
“We want to better understand the nature and purpose of these payments and their disclosure, including whether they’re reimbursements for plan expenses or payments for shelf space or some other purpose,” the agency said in a statement....
Putnam spokeswoman Nancy Fisher confirmed the company received a questionnaire regarding its defined contribution practices.
“We are cooperating fully,” she said....
What goes around comes around ...
October 20, 2004
Investors Are Losing Ground as
Insurance Inquires Expand
By Gretchen Morgenson, The New York Times
The disastrous decline in Marsh & McLennan’s stock that has followed Eliot Spitzer’s lawsuit of last week has injured a broad array of institutional and individual investors. But the pain of losing almost 50 percent in share value is perhaps most excruciating to the thousands of Marsh & McLennan employees who have bought Marsh stock in the company’s employee stock purchase plan or in their retirement plans.
In the months after the market crash of 2000, the lesson of diversifying beyond one company’s stock was hammered home. But as the market recovered, many workers seemed to forget that important lesson. Marsh employees were among them; at the end of last year, one employee-benefit plan had $1.3 billion invested in Marsh & McLennan stock.
Now, of course, the risk in those holdings is all too apparent. But employee-benefit experts say that Marsh may be putting its 60,000 employees at additional risk, even as it enriches itself, by limiting the alternative investments to mutual funds that are for the most part managed by its Putnam Investments subsidiary.
“Fiduciaries of 401(k) plans are charged with making decisions that are in the best interests of the participants in the plan,” said Edward A. H. Siedle, a former Securities and Exchange Commission lawyer who is president of the Center for Investment Management Investigations, a unit of the Benchmark Companies in Ocean Ridge, Fla., that investigates money management abuses on behalf of pensions. “When they are also employees of a money management company that gets hired by the plan there is a conflict of interest. This is especially problematic when the money manager is a high-cost, poor performer.”...
Given that the company is in the financial services industry it is perhaps not surprising that workers at Marsh & McLennan and its subsidiaries have been given many opportunities to buy their company’s stock or its money management services. There is a pension plan, a stock purchase plan, 401(k) accounts, stock option grants and a cash bonus deferral plan to name a few. And in all cases, Marsh stock or Putnam funds dominate the offerings.
Sadly for these employees, Marsh shares have gone pretty much straight down since Mr. Spitzer filed his lawsuit against the company, contending that bid-rigging and other improprieties occurred in Marsh’s insurance brokerage unit.
Yesterday, Marsh stock fell another $1.47 a share, or 5.7 percent; it closed at $24.10 and has lost 48 percent since Mr. Spitzer filed the suit.
Workers who have participated in the Marsh stock purchase plan have taken perhaps the biggest brunt of this slide. Last year, 3.8 million shares were bought in the stock plan, well above the 2.85 million Marsh shares purchased in the plan in 2001. And employees working in the company’s international division, which is broken out separately, bought 1.2 million shares in 2003, far more that the 717,000 shares they purchased during the previous year.
Taken together, the shares bought by employees in the Marsh stock purchase plan amounted to five million shares, or almost 1 percent of the 533 million shares outstanding at the company at the end of last year.
Marsh employees have also bought their company’s stock aggressively in various 401(k) plans, a decision they now almost certainly rue. According to Marsh filings, at the end of last year, a defined-contribution plan for Marsh & McLennan employees has assets of $2.4 billion.
Almost 60 percent of the plan’s assets were in Marsh stock - $1.3 billion worth.
Another $938 million in the plan was in funds managed by, you guessed it, Putnam Investments. Of the 17 fund choices on the plan’s menu, 10 are Putnam Funds....
At Putnam Investments, employees have their own 401(k), with assets of $441 million at the end of last year. As is typical in such accounts, Putnam employees can invest their contributions, and any that are matched by the company, in a variety of investment options.
One of those options is Marsh stock and as of December 2003, Putnam employees held 344,000 shares with a value of $16.5 million, or $47.96 a share. Those shares, if they are still in the plan, have been cut in half....
Most peculiar, the Putnam 401(k) plan offers no low-cost index funds intended to mimic the performance of a broad market average, like the Standard & Poor’s 500 index. Such funds are usually ubiquitous in 401(k) plans. Mr. Siedle said such an omission at any plan was “an invitatation to litigation.”...
Trustees of the 401(k) plan for Putnam employees are Francis N. Bonsignore, senior vice president for executive resources and development at Marsh & McLennan, and Sandra S. Wijnberg, the company’s chief financial officer. They have a fiduciary duty to plan participants to provide the best array of investment options. But as Marsh executives, they may be tempted to benefit their company by propelling their workers into Putnam funds. The Marsh spokeswoman declined to comment of the trustees.
About the only Marsh employee plan not holding Marsh stock is the defined-benefit pension plan, which had $2.4 billion in assets as of last December. Employees in this plan do not choose the investments; money managers oversee the money.
But it is in the selection of those money managers that Marsh may be putting its interests ahead of its employees. Of the $2.4 billion under management, $1.8 billion is overseen by Putnam. And, adding to the potential for conflicts, the pension plan employs as an investment consultant Mercer Inc., the Marsh subsidiary that helps pension funds decide which money managers to hire.
Given Mercer’s role as a consultant, it is troubling but perhaps surprising that so much of the Marsh pension plan would be managed by Putnam.
www.nytimes.com/2004/10/20/business/20place.html
- For more on pension plan fraud, GO TO > > > The Great Nest Egg Robberies.
June 29, 2004
Marsh & McLennan Creates Outsourcing Unit
NEW YORK (AP) - Marsh & McLennan Cos, a professional services firm, combined the defined contribution administration business of Putnam Investments and <