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Columbia's T&T' Could be in Hot Water

Putnam Investments took the initial hit from the rash of sales and marketing executives defecting to Liberty Financial in the late 1990s, but it is Columbia, which since consumed Liberty, that is now poised to take a beating from the transaction.

Regulators have filed charges against Columbia that could result in the firm being barred from managing its own mutual funds. Reportedly in the thick of the alleged wrongdoing are the two former co-presidents of its distribution unit, both of whom hail from Putnam.

So far, regulators have filed charges, which include accepting $2.5 billion worth of timing business contrary to prospectus language, against the firm. The complaints cite individuals by title and do not name or charge them. However, there is a good chance regulators may still bring charges against individuals in the case in the near future, sources said.

Columbia has suspended eight of its employees (see MME 3/1/04), among them James Tambone and Louis Tasiopoulos, co-presidents of Columbia Funds Distributor. The "president" of Columbia Distributor was made aware of damage being done to the fund by the market-timing activity, yet continued to allow the arrangements, according to the Securities and Exchange Commission and New York Attorney General Eliot Spitzer's complaints.

The Putnam Connection

It is not the first time Tambone and Tasiopoulos have been at the center of a controversy. In a drawn-out lawsuit, Putnam sued Stephen Gibson, its onetime retail marketing director, managing director and head of corporate development, who jumped ship to join Liberty in June 1996. Gibson was promoted from EVP of marketing and business development at its Colonial unit to the role of president and CEO in December.

In January 1997, both Tambone, who had been managing director of Putnam's financial advisers unit, and Tasiopoulos, managing director of financial institutions, broke ranks and joined Gibson at Liberty. Putnam struck back with a lawsuit in Massachusetts State Supreme Court claiming the trio had violated non-solicitation clauses. Both sides settled the case without admitting liability. Notably, another former Putnam exec, Joseph Palombo, is among the eight suspended from Columbia, according to a source. Palombo, the chief operating officer of Columbia Management Group, joined Liberty in 1999 from Putnam, where he had been serving as the firm's COO and compliance chief of its retail fund business.

During the same year as the settlement between the Bostonian neighbors, 1998, Columbia Distributor's problems began, according to regulators. That year, management allegedly started entering into a series of market-timing arrangements with at least nine investment advisers, hedge funds, brokers and individual investors.

An attorney for the defendants did not return phone calls, and Tambone's attorney did not respond to repeated requests for comment.

Robert Powell, an industry consultant based in Salem, Mass., and founding editor of this newsletter, said that Tambone and Tasiopoulos helped transform Liberty's corporate culture, increasing the sales focus. Powell noted that T&T used their abilities and skills to create any competitive advantage they could.

The firm was facing an uphill battle in this area, as Putnam was a powerhouse and Liberty was only able to grow its assets under management by 7.3%, and its mutual fund assets by 4.3% in 1997. In the context of a market that was surging multiples of that rate, Liberty's growth can be described, at best, as sluggish.

However, Putnam's shop was "very potent" at that time, noted a former Putnam employee, who requested his name not be used. As an aggressive marketer with a high emphasis placed on sales, management treated the marketing and sales staff at Putnam better than the investment management professionals, he said. Tambone and Tasiopoulos were well regarded by Putnam management, he said, a sentiment echoed by several sources and illustrated by the fact that Putnam sued Liberty for poaching employees.

The pair probably felt pressure to perform at Liberty as they were brought in from Putnam, a "very marketing-aggressive-oriented shop," the source said. Most likely, they had high expectations attached to their arrival. Others agreed that pressure and high expectations might have led management at Liberty, including T&T, to enter into deals they might not otherwise have.

Whether the result of individual actions or not, sources said, the aggressive corporate culture of Putnam in the late 1990s whereby assets under management were emphasized at the expense of what was best for investors, appears to have infected Liberty around the same time Tambone and Tasiopoulos arrived.

T&T were very strong and aggressive sales executives, driven by growing assets, one source said. The pair was not unethical; the two just were not concerned with ethics, the source said.