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Fidelity and Putnam Among Fund Families Duped by Longtop

Longtop's great growth seduced some of the biggest fund names.

Susan Daker, 05/30/2011

Fidelity, Putnam, and Janus are among the asset managers apparently fooled by Longtop Financial Technologies LFT, the Chinese software company accused of falsifying its bank and loan balances.

On May 23, Longtop said Deloitte Touche Tohmatsu resigned as auditor from Longtop. The company had posted terrific annual revenue growth, but in a letter the accounting firm says the company falsified its financials, including cash balances and possibly revenue, and that it can no longer rely on management's financial reporting. Moreover, it said, given recent findings, previous audited reports should not be trusted. Thus, whatever investors thought the company had been worth, in reality, its value could be much, much less, if anything.

The company had a mere $1.1 billion market cap when trading in its stock was halted at $18.93 a share on May 16. It would be hard for a large asset manager to buy shares in a firm with such a small market cap without the purchase being a large stake, but Fidelity had enough confidence in Longtop to hold about 14.5% of it as of March 31. It appears that Tom Allen, a Fidelity fund manager with a good track record, was the one who bit. Several of his funds, including Fidelity Advisor Global Capital Appreciation FGEAX and Fidelity Advisor Mid Cap II FIIAX, have Longtop shares. A Fidelity spokeswoman declined to comment.

Four Putnam funds, Putnam Voyager PVOYX, Putnam International Equity POVSX, Putnam Global Equity PEQUX, and Putnam International Capital Opp PNVAX, are also listed as major shareholders. Though Longtop comprised only 0.30% of Putnam Voyager as of March 31, manager Nick Thakore had markedly increased his stake in the firm during the first quarter. Putnam spokespeople were not immediately available for comment.

Calamos Growth CVGRX owned a 3% stake in the company, and that accounted for 0.58% of the fund as of March 31. Longtop accounted for 1.3% of Janus Global Technology JAGTX as of March 31. Calamos and Janus also declined comment.

Click here for the list of Longtop's major fund shareholders.


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