Sending in go-to guy

A decade ago, Barry P. Barbash helped the Securities and Exchange Commission rewrite the rules on personal trading by mutual fund managers.

As head of the SEC's investment management division, the nation's top mutual fund regulator, Barbash led an agency study that eventually resulted in tighter restrictions and better disclosures to prevent conflicts of interests with money managers making personal trades in stocks owned by their funds.

Now a private attorney in Washington representing the financial firms, Barbash is in the midst of a new trading scandal by mutual fund managers: Putnam Investments' parent Marsh & McLennan has tapped him to conduct an outside review of the employee trading scandal that resulted in fraud charges against the venerable Boston firm.

"He's recognized as an authority in this area, one of the go-to lawyers in the industry," said John O'Hanlon, an attorney in the Boston office of Dechert LLP who worked for Barbash at the SEC in the 1990s.

Yet as widely respected as he is, some still question whether even someone as independent as Barbash will make findings and recommendations that reflect poorly on his employer -- Marsh & McLennan and Putnam.

"Putnam fund shareholders shouldn't lose sight of the fact that his client" is the company, not the funds' investors, said Mercer Bullard, who worked under Barbash at the SEC, and now teaches securities law and runs a watchdog group called Fund Democracy. "The reason to take some comfort from this is that Barbash is not going to sell his reputation for a bunch of lukewarm recommendations. But when push comes to shove, no recommendation he's going to make will be a net loss to that company."

Born in Lawrence, and reared in Framingham, Barbash is a rabid Boston sports fan who still winces at Grady Little's decision to leave Pedro Martinez in the seventh game of the American League playoffs. He is also a manic runner, who had an astonishing streak of running every day from June 2, 1979, to Oct. 8, 2001, snapped when he suffered a medical condition. Recovered, he's now run every day since Jan. 1, 2002. "I now have knees that click," he quipped.

Since leaving the SEC in 1998, Barbash had represented financial firms -- he and his firm are counsel to Fidelity Investments' mutual funds -- and also is something of a hired fixer for investment companies that have internal problems, especially on issues of poor compliance and inadequate controls.

"Compliance transcends policies and procedures. It requires everyone in an organization to have a greater idea within them of doing what's right for the client," he said.

Barbash said he's been assured by the chief executive of Putnam parent Marsh & McLennan, Jeffrey W. Greenberg, that there would be no limits to what he can investigate, or to what he can say about his findings.

"You can't stay in my business if you don't play it straight," Barbash said. "I've been assured there will be input but no interference. I would never take on one of these without complete understanding of that."

He faced the same kind of questions about his independence in 1993 when, as a former industry lawyer, he became head of the SEC division that regulates mutual funds. But in his send-off from the agency in 1998, then-SEC chairman Arthur Levitt noted Barbash's "unswerving dedication to the integrity of the mutual fund industry and the protection of investors."

His SEC accomplishments included getting mutual funds to rewrite prospectuses in plain language to make them more intelligible to average investors.

And he had a habit of chiding the industry on matters that presaged today's scandals. The September 1994 SEC report on managers' personal trading that Barbash led noted that the mutual fund industry had been relatively free of scandal over the prior two decades. But, "the industry will continue to be trusted by investors only if it demonstrates that it will maintain the highest possible ethical standards and that it operates free from abusive and fraudulent practices."

At the time the scandal afflicting the industry involved portfolio managers and mutual fund employees "front-running," that is, personally buying stocks ahead of their funds, buying into hot initial public offerings and getting other trading deals that put their interests ahead of the investors in the funds they managed.

In a 1996 speech before mutual fund officials, Barbash referenced several recent trading abuses and warned that "cases such as these . . . should serve as a high-decibel warning to the fund industry of the critical importance of strong internal compliance procedures."

The SEC eventually adopted rules requiring money managers and investment professionals with knowledge of portfolio holdings to disclose their holdings to the fund's directors, directors to adopt ethics codes on such trading and managers getting preapproval to buy into IPO stocks and other deals.

The issue at Putnam is similar to what he tackled a decade ago: Why would highly paid portfolio managers trade on the side? "Maybe it's the same answer as before -- they're insatiable traders," Barbash said. "I don't know. I find that a very difficult question to answer."

Friends and colleagues predict Barbash will eventually find out what went wrong at Putnam. Moreover, in his defense, they said he is not the guy you hire to wallpaper over problems. "He's a nice guy, but he's got a lot of determination in him, a lot of steel in him," said Gerald F. Rath, a prominent investment industry lawyer at Bingham McCutchen in Boston.

Andrew Caffrey can be reached at caffrey@globe.com.For documents and background of the mutual fund investigations, click on the market-timing link at www.boston.com/business.