Putnam chief Lasser agrees to resign
Mutual fund hit for trading abuses
Lawrence J. Lasser, who over the last 18 years helped build Putnam Investments into the nation's fifth-largest mutual fund company, has agreed to resign as chief executive of the venerable Boston investment house in the wake of federal and state fraud charges filed against his firm, an executive close to Putnam's parent company said last night.
Lasser would become the highest-profile executive to lose his job in the widening investigation into unfair and abusive trading practices that is roiling the mutual fund industry. More than three dozen brokers, traders, and fund managers at various firms have been let go since New York Attorney General Eliot Spitzer, Massachusetts Secretary of State William F. Galvin, and the federal Securities and Exchange Commission disclosed their investigations in September.
Marsh & McLennan Cos. of New York, which owns Putnam, is expected to announce Lasser's departure this morning, hoping to stanch the outflow of billions of dollars in assets after state and federal officials charged that the company committed fraud by allowing several of its money managers to repeatedly trade rapidly in and out of mutual funds they supervised. Public pension funds in six states -- Massachusetts, New York, Vermont, Pennsylvania, Rhode Island, and Iowa -- pulled more than $4 billion from Putnam last week alone, while 10 other states are considering such a move.
Marsh & McLennan chief executive Jeffrey W. Greenberg met with several Marsh & McLennan board members and some senior executives of Putnam yesterday at the Four Seasons Hotel in the Back Bay. Approached at the Bristol Lounge of the Four Seasons last night, Greenberg said, "We haven't announced anything," and declined further comment. Lasser was unavailable for comment last night, and a spokeswoman for Marsh & McLennan did not return calls seeking comment. A Putnam spokeswoman also declined comment.
Lasser's departure signals that Greenberg and executives of Marsh & McLennan are taking a much more active role in sorting out the mess at Putnam, which less than two weeks ago admitted that six of its money managers had made excessive short-term trades in the company's mutual funds, including four who traded in international funds they directly supervised. Such rapid trading, also known as market timing, lowers returns for other investors in a mutual fund.
Marsh & McLennan shares have fallen nearly 14 percent since the investigation was made public in mid-September.
Lasser's departure caps a dizzying few days beginning last Tuesday when Putnam became the first mutual fund company to be charged in the snowballing investigations of trading abuses in the industry. Within days, public pension funds and corporate retirement plans around the United States fired Putnam, including several from its home state, led by the Massachusetts state pension fund.
Lasser has long been one of the mutual fund industry's best-paid executives, and his resignation is expected to trigger another big payday. The employment contract Lasser signed in 1997 provided a special retirement benefit valued at $15 million in exchange for an agreement not to compete with the firm, and for future consulting. In addition, if Lasser were to leave the firm on good terms, he is eligible for millions more in compensation and restricted stock. In the last five years Lasser has earned $5 million in salary and $100 million in bonuses.
It's not yet known whom Marsh & McLennan officials will tap to replace Lasser. One favorite candidate among some Putnam clients and investment staff is Charles "Ed" Haldeman, who was hired in October 2002 to help turn around three years of poor performance at the firm.
Many of its funds performed extremely well in the late 1990s, as managers loaded up on technology stocks. After the Internet bubble burst, however, that same emphasis on technology severely hurt performance and led to a shakeup among the firm's top management and withdrawals by individual investors.
Putnam officials have indicated that Lasser was told about the employees' trading in 2000, but was told by senior executives that the issue had been taken care. In a letter to clients last week, he wrote, "We are embarrassed and feel terrible about this," and that a few employees "caused me, our firm, and more importantly, our customers, great anguish."
In a statement late last week, John A. Hill, chairman of the Putnam Funds trustees, said his board is "particularly concerned about the fact that the Trustees of the Putnam funds were not informed of these matters until a few weeks ago." Lasser also serves as a trustee.
Lasser, 61, took over a sleepy bond-dominated firm and turned it into a giant of the industry as the bull market soared. Along the way he became widely known in the industry for his hard-charging, autocratic style.
He is known to write searing memos, internally dubbed "Lassergrams," to admonish a fund manager with low rankings or the staff for failing to pick up trash in a hallway. Looking back on the stunning turn of events at the firm, some former managers blame a culture of greed and arrogance, sparked by a rich salary and multimillion-dollar bonuses for Lasser.
Indeed, as Massachusetts pension officials were deliberating last week over firing Putnam after the allegations surfaced, officials said Lasser did not contact them to try to retain the state as a client. Lasser did attend an Oct. 1 meeting that state pension officials called to discuss Putnam's poor performance managing international investments for the state, and Lasser sought to assure them that Putnam was working hard to improve performance.
Last night, Greenberg was scheduled to meet over dinner in Boston with several Marsh & McLennan and Putnam officials, including former Marsh & McLennan chairman and chief executive A.J.C. Smith, and Steven Spiegel, Putnam's senior managing director.
The Marsh & McLennan board is expected to hold a meeting in Boston tomorrow, with some members attending via telephone. Greenberg is also expected to meet today with State Treasurer Timothy P. Cahill, chairman of the state pension fund that last week fired Putnam as manager of nearly $1.8 billion in retirement funds.
And as Marsh & McLennan seeks to repair the damage done to Putnam's image, the company has approached Barry P. Barbash, a former SEC lawyer who oversaw regulation of the mutual fund industry, to do a broad review of Putnam's compliance systems, according to regulators involved in the Putnam probe. Barbash, who is now a partner with the Washington, D.C., law firm Shearman & Sterling, yesterday said only that he has done work for other fund groups since the market-timing scandal erupted.
Putnam officials said they first detected and stopped the employees trading in 2000, but at the time did not discipline the six employees involved or force them to surrender an estimated $700,000 in profits. Once it did disclose the employees' trading less than two weeks ago, Putnam said four of them would be forced from their jobs for trading in funds they managed, and that the company would reimburse the funds of their profits. The company, which has denied acting fraudulently, also disclosed it is "investigating whether other employees made excessive short-term trades in recent years."
Also, last week the Massachusetts Division of Securities subpoenaed Lasser's own trading records, according to investigators who asked not to be identified. Putnam was due to turn over those records by the end of this week, those people said.
Meanwhile, in another indication of the intensifying goverment probes of the industry, as many as a half-dozen former brokers and supervisors in Prudential Securities' Boston office are expected to face civil fraud charges from both Massachusetts and federal regulators this week related to market-timing trades in mutual funds, according to investigators who asked not to be identified.
Both the Massachusetts Securities Division and the SEC are expected to accuse the brokers of using deceptive practices, such as opening fictitious accounts, to disguise their repeated quick trades in and out of mutual funds, and at least one if not more former business managers of the Prudential office for failing to supervise the brokers, according to the sources.
Lawyers for the former Prudential employees, who haven't yet been named, said the charges are unfounded.
Andrew Caffrey can be reached at caffrey@globe.com; Steve Bailey at bailey@globe.com. Beth Healy of the Globe staff contributed to this report.
For documents and background of the mutual fund investigations, click on the market timing link at www.boston.com/business. 