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Originally posted by Anne Elk
Anyone else wondering why Putnam and the SEC settled so quickly? Is it fishy, or was Putnam trying to make it go away to try and save face (and the billions that haven't been pulled out yet)?Article here.
I still don't understand how the practice of in and out trading was allowed in the first place. Isn't it a version of insider trading?
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Because, as you suggest, Putnam wants to put the bad vibes behind them as quickly as possible. The bad vibes alone are costing them huge dollars in withdrawals. And, it potentially exposes them to suits from others, based on the fact that the withdrawals continue, driving up their costs and lowering other investors' returns. From the SEC's perspective, my understanding is that the trading is not explicitly illegal, which is why the SEC is considering rules to make it so, so the charges might not ultimately survive a strong defense. So the SEC can make it look like they're doing something even though they might not have the power to do so. (Of course, I don't know the securities law on this beyond what I've been reading about these practices in general).
It's not insider trading because the traders were using public information--what the markets were doing in other parts of the world after the close of US markets. The unfairness is simply that they were allowed to do it, but small investors were not. Favoritism is the problem, not inside information. Like when banks are able to buy a lot of shares at IPOs and then flip them for a quick profit.
