The Texas State Employee Retirement System is suing Putnam Investments, its former mutual fund adviser, for fraud, demanding the recovery of million of dollars in fees, the Austin American Statesman reports.

The Texas pension fund fired Putnam in November 2003, after it first came to light that Putnam was under investigation for market timing.

The lawsuit charges that Putnam knew about the market timing for years before Texas hired the firm and concealed the investigation in late 2003. It also notes that two of the six traders the Securities and Exchange Commission proved were engaged in market timing, Omid Kamshad and Justin Scott, were advisers to the Texas pension plan.

"We believe the lawsuit is without merit," Putnam spokeswoman Laura McNamara told the Statesman. "There is simply no way that market timing in a retail mutual fund could have caused any damages to [the Texas State Employee Retirement System's] separate institutional account."

But a spokeswoman for the Texas pension plan, Mary Jane Wardlow, said the lawsuit "was a last resort after Putnam chose not to resolve the matter." Rather than work with state attorneys, the pension fund has hired a private lawyer firm, Graves Dougherty Hearon & Moody, to represent its case.

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