Peter Scannell, the whistleblower who helped take down Putnam Investments, for alleged mutual fund trading abuses, on Monday filed a lawsuit against the Massachusetts Attorney General and the state itself seeking a bounty for his role in uncovering the scandal.

Scannell, 48, is suing to collect a reward under the state's False Claims Act, aimed at providing protection and financial awards to those who expose fraudulent actions that have an adverse effect on the cities and towns within the Commonwealth or any political subdivisions of the Commonwealth. The move comes after Scannell was denied a $15 million reward, which he believed he was entitled to as an informant.

David Kerrigan, Attorney General Thomas F. Reilly's government bureau chief, praised Scannell's assistance in uncovering wrongdoing at the Boston mutual fund giant, but ruled that he does not meet criteria of a whistleblower under the statute. Therefore, he was deemed ineligible for the 30% compensation of Putnam's fines to the state of Massachusetts.

Putnam paid $193.5 million in state and federal to charges for alleged market-timing and self-dealing transgressions.

Scannell's lawyer, Robert C. Autieri, argues that the Massachusetts Pension Reserves Investment Management Board (PRIM), a "political subdivision" covered under the Act, had $1.7 billion of state retirement money invested with Putnam at the time the market-timing practices were exposed.

In addition, numerous cities and towns had millions of dollars invested with Putnam. In both instances, the parties suffered significant losses as the result of the preferential treatment Putnam provided to hedge funds and other large investors.

"The Attorney General's decision to deny Mr. Scannell's claim and demand leaves him with no other alternative to enforce his rights but to file a complaint in Superior Court," Autieri said, in a prepared statement. The denial of Scannell's claim "appears to be based on a narrow and technical interpretation of this relatively new statute," he added.

Scannell first reported evidence of market timing to the Securities and Exchange Commission, which failed to act, and then to Secretary of State William Galvin and his securities division chief Matthew Nestor, who proceeded with the allegations. In addition to Putnam's fines paid in the settlements, Scannell's tip resulted in the ouster of the company's CEO Lawrence "Larry" Lasser.

Autieri noted that Scannell paid dearly for being an informant in the Putnam case, having been assaulted with a brick by an assailant urging him to keep his mouth shut. The attack has rendered him "physically and emotionally disabled," Autieri said, causing him to suffer from post-traumatic stress. Further, he claims that he has been blackballed in the industry and put under financial duress.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.