Massachusetts authorities are probing the possibility mutual fund firm Putnam Investments defrauded customers by paying improper rebates to some retirement funds at the expense of other investors, the Wall Street Journal said on Friday.
Citing documents and people familiar with the matter, Putnam, a unit of Marsh & McLennan Cos (MMC) , agreed in one case to give a New York union's retirement plan an annual $40,000 expense rebate, the Journal said.
Putnam employees said the mutual-fund company would use marketing and distribution fees it collects from all of its fund shareholders in order to give the retirement plan its rebate, the Journal said, citing e-mails.
Yet the U.S. Securities and Exchange Commission has told the fund industry that such rebates to preferred clients may be in violation of laws passed to create an equal playing field for all investors.
The Massachusetts Securities Division, which Secretary of the Commonwealth William Galvin oversees, is also examining how the pension plan for the Boilermakers Local 5 in New York used the rebate money, the Journal said.
The money is intended for administrative expenses relating to the plan's 1,000 covered employees.
Massachusetts authorities are examining whether union trustees of the plan benefited from the payments, the Journal said.
Putnam has been embroiled in a debilitating trading scandal, and investors pulled out $54 billion in assets in the fourth quarter alone after regulators charged the company with securities fraud. Several fund managers and clients engaged in market timing, a practice that, although not illegal, was forbidden at Putnam.
Putnam could not be immediately reached for comment by Reuters, but the Journal quoted a statement from the company's attorney Ralph Derbyshire: "We occasionally reimburse plan sponsors for reasonable plan administrative expenses that could otherwise be charged directly to the plan participants."
(WSJ)