Content area
Full Text
For all the hoopla surrounding the mutual fund scandals, the actual monetary damage to investors appears quite small.
Quick: Guess how much money investors in Putnam Investments mutual funds were cheated out of in the market-timing scandals. Hint: It wasn't the $110 million Putnam agreed to pay the SEC and Massachusetts's regulators. An academic, hired by Putnam to calculate losses attributable to market-timing and excessive trading, reckons the number is more like $4.4 million. And that includes interest.
The $4.4 million sum-calculated over several months by Harvard Business School professor Peter Tufano-is a substantial sum, but for a company that had more than $250 billion in assets at the time of the misdeeds, the losses seem, well, somewhat underwhelming. That said, Tufano reckons that the actual, total losses were probably far higher-perhaps $48.5 million, including interest-if you factor in the panic selling the news of the market-timing and excessive trading caused.
This is not to apologize for the misdeeds of the several Putnam employees involved, but let's face it: Most shareholders will eventually receive less than $1 in compensation, and many will get nothing, says John Hill, chairman of the Putnam Investment Management Board of Trustees. Worse, there may be no way to accurately figure it out. The SEC, in accepting Tufano's report in March, agreed that his "methodology is acceptable" but stopped short of full endorsement, saying there may be other ways to calculate losses to fund shareholders.
And that's precisely the problem. Putnam is the first company to provide an estimate of the impact of its employees' shenanigans, and its experience is likely to prove typical. In an era when the Enron and WorldCom sagas have produced dramatic trials and enormous losses, the fund scandal has caused investors far less damage. (Indeed, investors continue to pour record amounts of money into funds.) Dozens of executives at fund companies lost their jobs. Fund families such as AIM and Janus suffered redemptions and scarred reputations. Still, the scandals seem to have produced relatively little impact, considering the many months of headlines and the $3 billion in total fines and penalties imposed by regulators.
Of course, this could be the calm before the storm. Former Bank of America broker Theodore Shiphol faces 40 counts...