Letters to the Editor
Monday, May 5, 2008
Mr. Haldeman: A-Okay!
To the Editor:
I write in response to The Dartmouth Review’s April 21, 2008 article concerning Ed Haldeman, the CEO of Putnam Investments. As Putnam’s outside counsel, I have worked closely with Putnam’s former and current management on market timing issues since 2003. In doing so, I have come to know Ed Haldeman as a man of extraordinary integrity and character. Ed stepped into the CEO role at Putnam during its most challenging hour and put it on a path to health and stability. Although I will not address each of the many inaccuracies in the article, I would like to make the following points:
Market timing issues at Putnam were exhaustively investigated by the SEC and the Massachusetts Securities Division, as well as the Audit Committee of the Board of Trustees of the Putnam Mutual Funds. The Trustees of the Putnam Funds are independent from Putnam Investments and were assisted by preeminent counsel.
These investigations included reviews of hundreds of thousands of pages of documents and interviews and sworn testimony of many dozens of witnesses, including Mr. Peter Scannell, the apparent source for the Review’s April 21 story.
In the course of these investigations, there has never been any indication that Ed Haldeman was aware of alleged market timing improprieties before they came to light in the fall of 2003. In fact, just the opposite is true. Indeed, when I personally interviewed Mr. Scannell he never said anything to the effect that Mr. Haldeman was aware of market timing problems at Putnam...[Scannell] had no access to any information about the trading by portfolio managers nor would he have had any information about what Ed Haldeman knew or did not know.
Ed arrived at Putnam in the fall of 2002, and only learned of alleged market timing improprieties in September, 2003, after those issues surfaced in connection with regulatory inquiries at Putnam and other firms in the mutual fund industry.
Ed was named as the new CEO by Putnam’s parent company because he was the right person to address and resolve market timing issues at Putnam and because he was a leader who could restore Putnam’s reputation as a world-class investment management firm.
After becoming CEO, Ed indeed took strong actions, including personnel changes, settlements with the appropriate regulatory authorities, implementation of industry-leading compliance procedures and shareholder disclosures, and, most importantly, aggressive action to fully reimburse Putnam’s mutual fund shareholders for any damages that they may have incurred as a result of market timing improprieties.
I have watched with great admiration as Ed has spent his four-and-one-half years as CEO relentlessly promoting a culture at Putnam that is built on uncompromising ethics and a “shareholder-first” value system. He enjoys the enthusiastic support not just of his colleagues and employees, but also of an entire industry. Ed’s principled leadership and values are largely responsible for the restoration of Putnam’s good name.
Very truly yours,
James R. Carroll
Skadden, Arps, Slate, Meagher & Flom LLP
Intimately Familiar with Market Timing
To the Editor:
I am writing in response to your article that appeared in The Dartmouth Review on April 21, 2008 regarding Ed Haldeman and his tenure at Putnam Investments. As the Independent Chair of the Board of Trustees of Putnam Funds, which contracts with Putnam to manage funds on behalf of our shareholders, I am intimately familiar with the events described in the article and the investigations performed by the Board’s Audit Committee and the SEC’s independent consultant regarding these events.
Although there are a host of factual errors in your article, there are several indisputable facts that are well documented by the investigations that were undertaken by the Board’s Audit Committee with the assistance of outside counsel and which were widely disseminated to the press at the time.
First, there were only a very few people among Putnam’s senior management who were aware of the market timing by a handful of Putnam employees in 2000 and 2001 and by a small percentage of 401(K) participants before it became public in September 2003. Ed Haldeman clearly was not one of them.
Second, when Ed and the Fund Board first learned of these activities in September 2003, his immediate reaction was the same as the reaction of the Board: if these charges are true, the employees should be terminated immediately and fund shareholders should be reimbursed for any harm caused by these activities. Ed, in fact, followed through on both of these commitments and launched a major effort to revise the Putnam code of ethics and inculcate a culture at Putnam which puts ethical conduct and shareholders first.
This recitation of facts could go on for many pages, but let me close with the fact that Ed was recently honored by being named “the most influential” fund leader by CFA magazine, the magazine of Certified Financial Advisors (CFA), for the high standards that he sets for fiduciary responsibility. Obviously people outside of Putnam, including Ed’s professional investment peers, agree with my board’s view of Ed as an exemplary leader who sets and expects the highest of ethical standards for his employees and employer.
Sincerely,
John H. Hill
Chairman of the Board of Trustees for Putnam Funds
Editor’s Response: We agree with Mr. Hill that certain facts of this case are indisputable. In fact, these facts have been accumulating in the Review’s offices for months now. The Review will present those facts and pose the three questions that arise as a result of those facts.
First, it should be noted that when our main source for this article, former Putnam employee Peter Scannell, contacted the Review, he did not do so to directly indict Haldeman. Rather, Scannell was curious about the connection between Haldeman and Professor Eric Zitzewitz, a recent addition to the Dartmouth Economics department, and the foremost scholar on market timing in the country, if not the world.
It was only through the course of many conversations, that the information presented about Haldeman The Dartmouth Review’s April 22, 2008 issue came to the fore.
Fraudulent market timing occurred at Putnam Investments while Chair Ed Haldeman was there. The market timing occurred by both Putnam portfolio managers and Putnam employees. A total of fifteen Putnam employees and portfolio managers were eventually indicted by the SEC for market timing. Initially, the SEC did not act to stop the fraud at Putnam; only after the Massachusetts’ Attorney General got involved did the SEC feel impelled to step in.
Putnam is currently being sued for allowing its employees to market time funds as late as 2003. Haldeman joined the company as head of investments in 2001.
By 2000 at the very latest, then-CEO of Putnam, Larry Lasser, was informed of improper trading at Putnam by Tim Ferguson, then-head of investments. Haldeman replaced Ferguson in 2002, after Ferguson was removed from his post. The market timing did not end.
Did Ferguson tell Haldeman what he told Lasser?
The market timing continued under Haldeman, and while it was continuing, contrary to Mr. Carroll’s and Mr. Hill’s statements, Peter Scannell accumulated evidence (in the form of documents) proving that market timing was occurring. Scannell still has these documents; these are the very documents he took to the SEC, which did not initially act on Scannell’s tip; however, when Scannell took these very same documents to the Massachussets Attorney General’s Office, that office acted on Scannell’s evidence. As a result, Juan Marcelino, the man who presided over the Boston office of the SEC, resigned in November 2003; the SEC was then forced to take more formal action.
In mid-April, when Scannell’s lawyer met with and initially gave those documents to the SEC, the SEC specifically requested the names of the funds that were being market timed—through his lawyer, Scannell gave those names to the SEC. Scannell alleges that his lawyer, Jody Newman, met with the securities lawyer Walter Ricciardi about the market timing at Putnam. Ricciardi would later take over Marcelino’s old post as District Administrator of the SEC’s Boston District Office.
On April 28, 2003, Scannell himself met with some SEC officials. Walter Ricciardi, who would later replace Marcelino as head of the SEC’s Boston office, intended to be at that meeting, but canceled last minute. The other SEC officials at the April 28 meeting assured Scannell that Ricciardi would be briefed on that meeting.
Scannell gave the requested fund names to the SEC as early as mid-April. By April 30, Putnam had changed the funds’ names.
When The Dartmouth Review contacted a former Putnam insider, asking him if it was plausible that Mr. Haldeman was unaware of the market timing and name change, the former insider responded that the Review could gather what his—the former insider’s—response would be, without his having to respond. The former insider went on to say that when he was at Putnam, the company’s high officials operated within a culture of secrecy and intimidation. The former insider wished to remain anonymous, though we can confirm that he was a senior official at the company.
Did this alleged cover up occur under Haldeman’s watch?
Interestingly, on April 25, 2008—three days after the Review published the article on Mr. Haldeman—Walter Ricciardi resigned from his post as senior enforcement official at the SEC. On October 27, 2005, Ricciardi was promoted to senior enforcement official at the SEC, leaving the Boston office of the SEC behind. Scannell alleges that an SEC official, perhaps Ricciardi, in April 2003 alerted Putnam to a possible investigation of the market timing, which then led to Putnam’s alleged cover up.
Putnam Funds’ Board Chairman John Hill tells the Daily Dartmouth, “The name change mentioned in the article had nothing to do with market timing.” The name changes occurred at the exact moment that Scannell took his information to the SEC. The name change occurred April 30. Scannell contacted the SEC mid-April.
Fund names typically change only if they are doing poorly or they have changed in composition. Neither condition applies to the International Voyagers Fund, which neither changed in composition nor was doing poorly: in fact, it was one of Putnam’s best performing flagship funds, rated five stars by the investment researching firm Morningstar. The International Voyager Fund was also the fund being heavily market timed by the Boilermakers, who may have been the perpetrators of Scannell’s assault as reported by TDR on April 22, 2008.
Was Haldeman unaware of the market timing and/or cover up, as he tells the Daily Dartmouth and his lawyer tells the Review? If not, does that mean that, as head of investments, he was at best a neglectful leader, and at worse an allegedly unethical one?
The Dartmouth Review has not made any formal charges against Haldeman. To the contrary, we invite Mr. Haldeman to answer our three questions.
Cat Got Your Tongue?
To the Editor:
“The editor-in-chief of The Review, Emily Esfahani-Smith ‘09, who authored the article, refused to comment.” [—Daily Dartmouth]
Why is this?
Catherine Haldeman
Editor’s Response: Contrary to what the Daily Dartmouth reported, Ms. Esfahani-Smith in fact commented; she gave what she thought was a reasonable response under the circumstances. She did not refuse to comment; rather, the Daily D refused to publish her comments.
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