The fall out of Regulation FD may just be starting. In the past month no less than five lawsuits, including one filed today, have been brought against Putnam Investments claiming that officials of the fund firm improperly learned of material, non-public information about Schering-Plough and then acted on it. Putnam officials admit to the meeting, but contend that no non-public information was shared.

The suits underline the difficulty for funds operating in the post-Reg FD environment. Fund firms, after all, have long--marketed their access to company management as a benefit to their shareholders. The current suits, though, can chill that relationship.

The issue arose after Richard Kogan, Schering-Plough's chief executive, visited Putnam's offices for a 12:30 to 2:00 pm lunch meeting. A Reuters report quotes one secretary for an unnamed fund manager as saying "a lot of people went to the meeting." Putnam describes the meeting as routine.

Those bringing the suits, though, contend that Kogan told the Putnam employees that Schering's outlook was "horrible" and that it would miss its earnings estimates in 2003 and 2004. Two days later, on October 3, Kogan released his opinion to the public and Schering stock plummeted more than 17 percent when the market reopened.

Putnam says it analysts had turned negative on Schering the weeks prior to the meeting, and that the portfolio managers were already reducing their positions before the meeting took place. "The decision was based on our own Putnam research," said the spokesperson.

What is known is that trading volume of Schering-Plough shares tripled that day to 19 million shares and the price started falling at 2:45 p.m. to close at $19.80 from $21.35 at the open.

"It was a routine pre-scheduled meeting, said a Putnam spokesperson. "We meet with company management all the time as a fundamental part of our research process."

That, of course, is the problem that fund firm's face. Their clout in the market built through the assets of shareholders open doors that other investors may not be able to open. Indeed, that is one argument for investing through a fund. However, as long as those meetings take place behind closed doors, fund managers remain open to the charge that they are acting improperly on information the public does not have.

For its part, Putnam is holding to its practices. "We continue to schedule meetings with the key executives from companies," relayed the spokesperson adding that Putnam considers the suits to be without merit. "We will vigorously defend ourselves." She also added that the firm has taken any other steps to change how the meetings are conducted. "We don't expect that any non-material information," she explained.  

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