Putnam's Lasser Ousted Amid Fund Trading Probe (Update6)
2003-11-03 16:30 (New York)
(Adds closing share price; SEC chairman's comment in 15th
paragraph; SEC resignation in Boston in 17th paragraph.)
Nov. 3 (Bloomberg) -- Putnam Investments ousted Chief
Executive Officer Lawrence Lasser, one of the mutual fund
industry's highest-paid and longest-serving executives, after the
company was charged with fraud for improper fund trading.
Marsh & McLennan Cos., Putnam's parent, named Charles
Haldeman, 55, to replace Lasser as head of the fifth-largest U.S.
fund manager, the company said in a statement. Lasser, 61, who was
paid $163 million during the past six years, will leave
immediately. His departure followed the withdrawal last week of
more than $4 billion by pension clients.
Lasser, who led Boston-based Putnam for 18 years, is the
highest-ranking manager to lose his job in the biggest inquiry of
the fund industry since the writing of the Investment Company Act
in 1940. Strong Capital Management Inc. yesterday said founder
Richard Strong stepped down as chairman of its mutual funds group.
In all, more than 30 people have been suspended or fired since New
York Attorney General Eliot Spitzer started the probe in September.
``This is a move they had to make,'' said Wayne Bopp, who
helps manage $31 billion at Fifth Third Bancorp in Cincinnati,
which holds about 3 million shares of Marsh & McLennan after
trimming its stake during the past two weeks.
Since the allegations of short-term trading by Putnam managers
emerged on Oct. 28, pension clients in states including
Massachusetts and Iowa have pulled their accounts from Putnam.
``To lose that many high-profile fund accounts in such a short
time is probably unparalleled,'' said Burt Greenwald, a fund
industry consultant in Philadelphia.
On Oct. 28, the Securities and Exchange Commission said Putnam
failed to properly enforce its code of ethics to prevent two former
money managers from taking advantage of inside knowledge about the
international funds they oversaw to generate quick profits for
themselves at the expense of their customers.
As part of a management overhaul, Marsh & McLennan said Steven
Spiegel, 58, Putman's senior managing director, will be vice
chairman, and A.J.C. Smith, 69, Marsh & McLennan's former chairman
and CEO, will return as chairman of Putnam.
New York-based Marsh & McLennan also said Barry Barbash, the
former chief mutual fund watchdog at the Securities and Exchange
Commission, will conduct an independent review of Putnam's policies
``This is a step in the right direction,'' said Jeff Thompson,
an analyst at Keefe Bruyette & Woods in Hartford, Connecticut, who
has a ``market perform'' rating on Marsh & McLennan and holds no
shares of the company. ``It's still going to take a while to get
things back on track,'' he said.
Shares of Marsh & McLennan, which had lost 14 percent since
Massachusetts announced its investigation on Sept. 16, rose $2.13,
or 5 percent, to $44.88 in New York Stock Exchange composite
Marsh & McLennan spokeswoman Barbara Perlmutter said the
company was reviewing terms of Lasser's contract. She declined to
be more specific about how much more Lasser may receive after
leaving. Under 1997 and 2000 contracts, Lasser may be owed more
than $30 million, according to company filings.
Marsh & McLennan Chairman Jeffrey Greenberg is meeting with
Putnam employees and clients in Boston, and isn't available for
comment, Perlmutter said. Lasser's cash compensation was about five
times what Greenberg earned during the past six years, according to
company filings. During the third quarter, Putnam contributed 23
percent of Marsh & McLennan's profit, down from 44 percent in 1999.
Greenberg today apologized to investors for the improper
trading at Putnam in a statement. ``The kind of conduct that has
occurred has no place at Putnam,'' he said.
SEC Chairman William Donaldson said the management change was
appropriate. ``It was on his watch that some of these things
happened, and he's taking responsibility for it,'' Donaldson said
after a speech at the University of Connecticut.
The fraud charges have tarnished one of the oldest names in
the fund business. Putnam was started in 1937 by a descendent of
Massachusetts Supreme Court Justice Samuel Putnam, whose 1830
ruling that funds in trust should be managed from the perspective
of a ``prudent man'' helped create the basis for the industry.
The Putnam scandal also claimed another executive today. The
SEC said Juan Marcelino, the head its Boston office, resigned after
criticism that his office failed to follow up on a Putnam
employee's tip in the mutual fund trading scandal. Marcelino, who
first joined the SEC in 1984, stepped down ``to minimize any
further distraction for his staff,'' the SEC said in a statement.
Haldeman came to Putnam last October from Lincoln National
Cos., where he was president and CEO of the company's Delaware
Investments unit. A graduate of Dartmouth College with degrees from
Harvard Business School and Harvard Law School, Haldeman has worked
in the investment business for almost 30 years.
Under Lasser, assets at Putnam rose to as much as $422 billion
in March 2000 at the peak of the Internet and technology-led stock
market rally from $20 billion when he took over in 1985. The
company oversaw $272 billion for clients at the end of September.
A day before the fraud charges were filed on Oct. 28, Lasser
apologized to customers in a two-page letter. Four managers,
including the head of international equities, and a retirement plan
had made short-term trades contrary to Putnam policies, Lasser
said. The managers were replaced, creating turmoil on the investing
team that gave investors another reason to depart.
``While we strongly believe that our actions weren't
fraudulent, we recognize the public perception of the facts and the
damage to our reputation,'' he wrote.
The alleged wrongdoing at Putnam marks the third time since
1998 that Lasser had to dismiss employees and say he was sorry for
From 2000 to 2002, the company's stock funds ranked third
worst among the 25 biggest companies tracked by researchers at
Kanon Bloch Carre in Boston. The sub-par performance was caused by
Putnam's overweighted investments in technology stocks contrary to
prospectuses that said the funds were diversified.
Putnam's Vista fund prospectus in late 1999 said ``because the
fund invests across many sectors, it is less dependent on any
single industry or stock, which may reduce risk.'' At the time,
more than half the fund was invested in two industries --technology
After performance dipped, Lasser replaced head of investments
Tim Ferguson in October 2002 with Steve Oristaglio, one of
Ferguson's deputies, and Haldeman, who was today named as Lasser's
replacement. Lasser also changed the heads of research and trading,
and more than a dozen fund managers.
In 1998, Putnam's biggest bond funds posted losses from
investments in emerging market debt, leading to the departure of
eight fund managers and two heads of fixed-income investing in
under a year. The turnover led to pension fund firings, including
by Massachusetts, which pulled $1.3 billion of bond investments.
Changing personnel has been a fixture during Lasser's tenure
starting in 1986 when the head of international investing, Walter
Oechsle, and 11 people who worked for him resigned to start their
own firm. Lasser sued, charging in an affidavit that the departing
employees were trying to ``cripple or destroy'' Putnam's business.
The suit was settled out of court and the new firm, Oechsle
International Advisors LLC, now has $20 billion under management.
In a 1995 interview with the Boston Globe, Lasser said he was
a tough boss. ``Some people find me difficult to deal with and hard
to understand and, maybe, not likeable,'' he told the newspaper.
``I'm sorry about that but I'll recover.''
Born in 1942, Lasser was the eldest of three sons. His father
owned a garment-making business in New York and the Lasser boys
were raised in Scarsdale, New York, a suburb 22 miles outside of
Manhattan. He missed the radical student movements at the end of
the 1960s after graduating from Antioch College in Ohio in 1965.
Next, while attending Harvard Business School, Lasser combined
his growing business acumen with an interest in contemporary
American art. He and a roommate would fly to Paris to buy prints by
artists like Ellsworth Kelly and sell them back in Boston.
Even as he moved up the ranks at Putnam, Lasser ran an art
gallery on Newbury Street in Boston's Back Bay neighborhood until
1981. Continuing his interest in art, Lasser selected prints by
contemporary artists like Frank Stella and Roy Lichtenstein for
Putnam's offices in downtown Boston's Post Office Square.
In last week's letter to customers, Lasser said he would take
responsibility for recent events at Putnam.
``Having to do so is painful, as the issues involve contradict
everything I have learned from Putnam and contributed to Putnam
over the last 34 years,'' he wrote.
--Aaron Pressman in the Boston newsroom at (1) (617) 338-5822 or
apressman@Bloomberg.net, with reporting by Helen Stock in New York,