The Commission filed a civil injunctive action in federal district court in Boston against Justin M. Scott and Omid Kamshad charging each of them with securities fraud. The complaint alleges that Scott and Kamshad, for their own personal accounts, engaged in excessive short-term trading of Putnam mutual funds for which they were portfolio managers. According to the complaint, Scott and Kamshad's investment decision-making responsibility for those funds afforded them access to non-public information about the funds, including current portfolio holdings, valuations and transactions. The complaint further alleges that Scott and Kamshad's short-term trading violated their responsibilities to other fund shareholders, that Scott and Kamshad failed to disclose their trading and that, by their trading, they potentially harmed other fund shareholders.
The Commission issued an administrative order instituting proceedings against Putnam in which the Division of Enforcement (the Division) alleges that Putnam engaged in securities fraud by failing to disclose to the funds or to the fund boards the potentially self-dealing transactions in fund shares by Scott, Kamshad and other employees. The Division further alleges that Putnam failed to supervise Scott, Kamshad and other employees, that it failed to have policies and procedures reasonably designed to prevent the misuse of non-public information and that it failed adequately to enforce its code of ethics.
Stephen M. Cutler, Director of the SEC Division of Enforcement, said: "Self-dealing is antithetical to the responsibilities investment advisers and their employees owe to mutual fund investors. We will continue to be, as we are today, vigilant in pursuing enforcement actions against securities professionals who put their own interests ahead of the interests of the investors they work for."
The specific charges against Scott and Kamshad in the federal court action are that they violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (Advisers Act). The Commission is seeking injunctive relief, disgorgement, penalties, and such equitable relief as the court deems appropriate. The Division's allegations as to Putnam are that it violated Sections 204A, 206(1) and 206(2) of the Advisers Act and Section 17(j) of the Investment Company Act of 1940 and that it failed to supervise under Section 203 of the Advisers Act. The Division is seeking relief in the form of a cease-and-desist order, disgorgement, a penalty, and such other relief as the Commission deems appropriate. In connection with the SEC's administrative order, a hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true and to provide Putnam an opportunity to respond to them.
The Commission acknowledges the assistance of the Secretary of the Commonwealth of Massachusetts in its investigation. Today's actions reflect the joint efforts of the Securities and Exchange Commission and the Secretary of the Commonwealth of Massachusetts, which today brought related actions against Putnam, Scott and Kamshad.
The Commission's investigation is continuing.
