The U.S. Securities and Exchange Commission announced today that it filed charges against six former officers of Putnam Fiduciary Trust Company, a Boston-based registered transfer agent, for engaging in a scheme that allegedly defrauded a defined contribution plan client and group of Putnam mutual funds of approximately US$4 million.

The commission’s complaint, which was filed on Dec. 30, 2005 in U.S. District Court in Boston, alleges that the defendants’ misconduct arose out of PFTC’s one-day delay in investing certain assets of a defined contribution client, Cardinal Health, Inc., in January 2001. The markets rose steeply on the missed day, causing Cardinal Health’s defined contribution plan to miss out on nearly US$4 million of market gains.

According to the complaint, 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 US$3 million of the costs of the delay to shareholders of certain Putnam mutual funds through deception, illegal trade reversals, and accounting machinations. The complaint also alleges that the defendants improperly allowed Cardinal Health’s defined contribution plan to bear approximately US$1 million of the loss without disclosing to Cardinal Heath that they had done so. The complaint further alleges that several individuals also took steps to cover-up the wrongful conduct. As a result, the conduct was not discovered until January 2004.

None of the allegations have been proven. The commission is seeking injunctive relief and civil monetary penalties.

The commission also announced that it would not bring any enforcement action against PFTC because of its “swift, extensive and extraordinary cooperation in the commission’s investigation of the transactions that are the subject of the commission’s complaint.”

The SEC says that PFTC’s cooperation consisted of prompt self-reporting, an independent internal investigation, sharing the results of that investigation with the government (including not asserting any applicable privileges and protections with respect to written materials furnished to the commission staff), terminating and otherwise disciplining responsible wrongdoers, providing full restitution to its defrauded clients, paying for the attorneys’ and consultants’ fees of its defrauded clients, and implementing new controls designed to prevent the recurrence of fraudulent conduct.

“Although the conduct alleged here was egregious, PFTC’s cooperation in this investigation and the remedial steps taken were extraordinary,” said Walter Ricciardi, deputy director of the division of enforcement. “In recognition of the company’s actions, the commission has determined it appropriate not to bring any enforcement action against PFTC in connection with the charges we are announcing today. We hope the commission’s actions here will encourage those who become aware of wrongdoing to do the right thing – stop the wrongful conduct, promptly report it to the commission staff, and cooperate fully in any subsequent investigation of the conduct.”