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Week in Review


Two Former Putnam Execs Avoid Draconian' Charges

Two former fund managers at Putnam Investments will pay $1.5 million to settle allegations they improperly traded mutual fund shares, the SEC and Massachusetts regulators announced Monday. Justin Scott and Omid Kamshad neither admitted nor denied the allegations.

Scott is paying disgorgement of $489,439 plus $159,474 in interest and a civil penalty of $400,000, for a total of $1,048,913 to be split evenly between the SEC and the Secretary of State of the Commonwealth of Massachusetts. Scott has also been suspended from working at any investment adviser for 12 months.

Kamshad is paying $57,157 in disgorgement, plus $13,709 in interest and a civil penalty of $400,000, for a total of $470,866, also to be split between the two regulators. Kamshad has also been suspended for 12 months.

Scott's attorney, Jack Silvia of Mintz Levin, told the Boston Globe: "Mr. Scott is pleased to have this matter resolved, while Kamshad's attorney, James J. McGuire, called the settlement "the lightest and least Draconian" of any stemming from the mutual fund timing and late-trading scandal.

"We believe the SEC's offer reflects the strength, or lack thereof, of the case against Mr. Kamshad. Mr. Kamshad is very pleased to put this matter behind him."

Rather than charging the two with market timing, the SEC characterized their actions as excessive "short-term trading" of mutual funds between 1998 and 2003.

For Many Janus Investors, Check is Not in the Mail

A proposed plan to repay Janus investors whose holdings were affected by market timing would require two-thirds of them, those who are owed $10 or less, to actively seek compensation.

That's because an independent consultant who advised the Securities and Exchange Commission on the recompense plan, University of Florida Professor Christopher James, said that because the losses are so small, it doesn't make sense to mail out checks to investors. About one-third are owed an average of 64 cents, and another 10% would get $28. Only 66 people would get $36,000.

Although Janus paid $100 million in fines, James found that investors actually lost $21 million. Nevertheless, the SEC is not going to reduce the fine.

The plan is posted on the SEC's website to give the public 30 days to comment.

Fixed-Income ETFs Seen As Next Big Thing

At the beginning of this year, Barclays Global Advisors was the only investment management company with a bond exchange-traded fund, the Financial Times reports. Today, however, there are nearly two dozen fixed-income ETFs from the likes of State Street and Vanguard, with more on the way from Bear Stearns and Ameristock.

"The income space is ripe for ETF innovation," said P. Michael Jones, chief investment officer at Wachovia Securities. "And it's not just narrowed down to bonds. To the extent that we can create income-oriented solutions that are lower cost, they will take off like a rocket," Jones said.

With the market now flooded with niche equity ETFs, firms are looking to fixed-income for fresh ideas. Scott Ebner, senior vice president of the American Stock Exchange's ETF Marketplace, agreed that bond products are a ripe opportunity for ETF providers.

As to why bond ETFs are so late to the table, one reason, certainly, is that the SEC exemptive relief process can take up to several years. A second is the sheer complexity of bond ETFs; due to maturing bonds, they must continually be replaced.

Nonetheless, with Bear Stearns and Ameristock coming to the marketplace this year, Anthony Rochte, senior managing director of State Street Global Advisors, believes that will prompt the SEC to speed up its approval process and competitors to come out with innovative products.

"The core building blocks of fixed- income are now in place," Rochte said.

Citigroup to Keep FRC After Acquiring BISYS

Putting to rest rumors that Citigroup would sell Financial Research Corp. after acquiring BISYS, a Citi official said that the company would not do so, Reuters reports.

"It's a hot property and a property that we will maintain because of its need in the industry," said Andrew Smith, head of Citigroup's North American funds and securities services. "It's very unique. It's very focused on a very specific operation."

Smith added that to be thought of as a "trusted adviser and [a] one-stop shop for our customers, it's important that we provide some level of research, as well."

Man Group Plans to List Hedge Fund on NYSE

The world's largest asset manager, Man Group, plans to list a hedge fund on the New York Stock Exchange for the first time, in a ploy to get more money from U.S. investors, according to The Wall Street Journal.

A trend is occurring in the industry that has hedge fund managers increasing their assets through closed-end fund vehicles that can be bought by both institutional and individual investors and bypass regulatory restrictions on direct hedge-fund investments.