With investors withdrawing their money from mutual funds, the corresponding stocks within those funds could see their prices plummet. Putnam Investment's loss of $14 billion in the first week of this month forced the company to sell more than $5 billion in stocks to compensate. This type of necessary reaction could hurt the market.

One analyst noted that this selloff could be detrimental to stocks since not too many fund managers are making big buys.

While Putnam seems to be leading the pack in terms of complexes under investigation that are losing money, Janus and Strong have also seen assets walk out the door. And if this continues, analysts said, an unfortunate market trend could continue to develop.

For Putnam, the last few days have been marred by hedge fund firms trying to figure out which of its holdings are most vulnerable to decline. "People are definitely trying to game Putnam's portfolio," Paul Hickey, an analyst with Birinyi Associates, told The Wall Street Journal.

While Scandal Prompts Some Sponsors to Bolt,Others Sit on the Fence

As the federal probe into securities abuses by mutual fund companies deepens, frustrated retirement plan sponsors are finding it difficult to know how best to protect investors' assets. "Plan sponsors, of course, are very concerned," assured Ed Ferrigno, vice president of the Profit Sharing/401(k) Council of America. "But it's such a fluid situation right now that they can't give any cogent advice yet."

- Employee Benefit News

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