Asleep at the switch

It has been left to New York Attorney General Eliot Spitzer to uncover one problem after another in the securities business and to show the SEC and its boss, William Donaldson, what regulation is all about. Now, with the mutual fund industry on the hot seat, the SEC is still following. Case in point: Boston's Putnam Investments.

On March 22 Peter Scannell, who spent 2 1/2 years working in Putnam's call center in Quincy, walked into the SEC's Boston office on Tremont Street with his lawyer from Dwyer & Collora. He was a whistle-blower armed with internal documents and a story of market timing run wild at one of the nation's largest mutual fund companies. The SEC attorney, Phil Koski, listened for an hour, commended Scannell for his courage, and promised to get back to him. He never did. Instead, Scannell's attorney called back several times over the next few weeks with no result. The message was unmistakable: No sale.

On Sept. 11 Scannell and his attorney took the same documents and the same story to Matt Nestor, chief of the Massachusetts Securities Division. Nestor spent four hours reviewing Scannell's material; six hours later he and his boss, Secretary of State William Galvin, had sent their first subpoenas to Putnam in Post Office Square.

This week both Galvin and Putnam confirmed the company is about to be charged with allowing some customers in its retirement plans to use its funds to rapidly buy and sell shares in international portfolios, creating profits at the expense of long-term investors. Putnam has denied wrongdoing. But in a bombshell yesterday, Putnam forced out six people, including money managers, for trading ahead of the funds.

Did the SEC drop the ball again?

"I cannot comment on the specifics of any investigation," Juan Marcelino, the SEC's district administrator in Boston, told me yesterday. "We take in 1,000 complaints a day at the agency. . . . We review all of them seriously."

While the SEC was "reviewing," Galvin's office was acting like a real regulator. And the story that is unfolding day by day sounds a lot like the one Scannell was telling. In an interview, Scannell, 47, described a culture of looking the other way at Putnam that allowed union workers who invested through their retirement plans to trade wildly in and out of their accounts, sometimes winning big, sometimes losing big. From 3 p.m. to 4 p.m. became known as the "JIB hour" in the call room, Scannell said, when members of the Joint Industry Board of Electricians would call in repeatedly to make trades.

When he complained to his managers, Scannell said, he was ignored or told to mind his own business. In late January, he says, he copied documents and planned to take them to the SEC. Then, on the night of Feb. 2, he says, he was in his parked car when a man, wearing a sweatshirt with the words "Boilermakers Local 5" emblazoned on the front, pulled him out, yelling he "better shut the [expletive] up," and began beating him. The next thing Scannell remembers is waking up, bloodied, with a police officer pulling him from the car.

Scannell eventually did hear back from the SEC, his lawyer says. Shortly after the Boston Globe ran a Page 1 story last month about the state securities division issuing subpoenas to Putnam, he said, the SEC called asking Scannell to come back in to talk.

Steve Bailey is a Globe columnist. He can be reached at 617-929-2902 or at bailey@globe

.com.