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A real American hero. Forget Jessica Lynch — there are still real heroes among us. Take Peter Scannell, a call center employee at Putnam Investments, who wouldn't take "shut up" for an answer to his inquiries about how his bosses were systematically destroying the savings of the company's small investors by turning a blind eye to a specialized form of rapid trading in mutual funds.

Scannell's tenacity puts not only the management of Putnam but the SEC to shame in their unwillingness to address the abuses they were overseeing (WSJ, 10/28/03, sub. req'd.):

A call-center employee at Putnam Investments says he turned to Massachusetts regulators after Putnam and the Securities and Exchange Commission failed to act on his complaints about heavy "market timing" trades at the mutual-fund concern.

The Putnam call taker, Peter Scannell, has now emerged as an important source of evidence supporting charges against Putnam, as part of a continuing investigation that is sweeping through the nation's $7 trillion mutual-fund industry.

[...]

Mr. Scannell said Putnam ignored his repeated warnings, from 2001 until earlier this year, about heavy customer trading designed to reap short-term profits. He said he was motivated by his belief that the trading was hurting other Putnam investors. In February of this year, he said he was assaulted in an incident that he says was connected to his attempts to stop the trading, leading to a disability leave from Putnam. Mr. Scannell said he consulted with a lawyer over his employment and his injuries and to seek advice about his discussions with regulators. But he said he hasn't retained an attorney to sue Putnam.

[...]

According to the account he provided to regulators, Putnam retirement-fund customers, including members of Boilermakers Union, Local 5, in New York, made thousands of trades in and out of Putnam international funds through the call center, in a way that harmed other Putnam investors.

"I've worked at a casino," says Mr. Scannell, a former maitre d' at a Lake Tahoe casino resort. "I know a racket when I see it."

His tip, regulators said, led to the discovery of another breach that is expected to be part of the Massachusetts charges Tuesday, and is acknowledged by Putnam: Six of its own money managers were also using market-timing trades, and made $700,000 doing so. The SEC is also considering bringing civil charges against Putnam as early as Tuesday related to the trading of mutual-fund managers.

[...]

Between July 2000 and Jan. 31, 2003, Mr. Scannell's tally determined, 10 of the boilermakers made 5,340 trades involving $657 million of shares. Their total gains added up to $2 million. Mr. Scannell said he compiled the information by looking at transaction histories when he spoke with clients. He said the tally may not be a complete picture of market timing at Putnam and wouldn't include those who made transfers over the Internet.

The most successful trader, Richard Martin, churned $226 million in 542 trades, resulting in a gain of more than $886,000. At the door of his home in Malverne, N.Y., Mr. Martin declined to comment, except to say: "You shouldn't have printed my financial information."

[...]

Also that fall, Mr. Scannell said he stopped another supervisor, Richard Crowley, and showed him an account he had been working on. One boilermaker had appeared to have been market timing since 1998, using Putnam International Voyager Fund, making gains of more than $400,000. Mr. Crowley replied, according to information Mr. Scannell provided to the state: "Oh, a market timer, how old is he? . . . 38, he should be fine," according to the account that Mr. Scannell provided to Massachusetts regulators. Mr. Scannell said he took that comment to mean that the union member would have ample time to build retirement assets. Mr. Crowley didn't return calls seeking comment.

In September 2002, preferred specialists met with Robert Capone, now a Putnam managing director, Mr. Scannell said, and one colleague voiced concern about the boilermakers. "They're all getting rich doing nothing," he recalls the colleague said, asking why Putnam couldn't impose restrictions on trading.

"Listen, it isn't criminal," Mr. Capone said, according to Mr. Scannell's account for the regulators. "I couldn't believe my ears and felt myself turning red," Mr. Scannell remembers. Mr. Capone declined to comment.

Disbelief and embarrassment in the face of unethical behavior come naturally to some of us, Mr. Scannell included. Not so the aptly-named Mr. Capone.

What the heads of financial services firms and regulators want, more than anything, is for us to remain bewildered at the complexities of these maneuvers and simply to forget all about it (Boston Globe):

The longtime head of the SEC's Boston office, Juan M. Marcelino, resigned two weeks ago after the Globe and then other media reported that the SEC ignored the whistle-blower Scannell. But it was not known at the time that the SEC's Boston office also was undertaking a lengthy review of Putnam, the second-biggest funds company in Boston and the nation's fifth largest, at the time that Scannell came in.

Reached at his home, Marcelino declined to answer questions about the Putnam matter and his office's response. "I feel uncomfortable talking about this," he said. "I just want to fade into anonymity."

The moral of this story: One call center employee can bring down a CEO — even one whose five-year compensation was $163 million. By recognizing that real but invisible harm is being done and not taking "shut up and just do your job" for an answer, one person can change an industry — and help guarantee the financial integrity and trust that America's elderly depend on.

Putnam was recently one of the companies that the Republicans would have used as an example of why privatization of Americans' retirement savings is such a good idea. Putnam is now the perfect example of why it is not.

In an era when the din of corporate money and the barking of the Supreme Court is louder than the votes of citizens, it's comforting to know that the mighty can still fall when they abuse their offices.

Peter Scannell is a true American hero.

{ 10:28 AM }

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