After realizing that disappointed informants – most notably Peter Scannell, the phone representative in the Putnam Investments case – are taking their knowledge to state authorities, the Securities and Exchange Commission is looking into the manner in which it deals with information received in the ongoing mutual fund scandal, Reuters reports.

But the SEC’s acknowledgement that it bungled its handling of Scannell comes a little late, as New York State Attorney General Eliot Spitzer continues to blast the nation’s top regulator. "Heads should roll at the SEC," Spitzer announced yesterday. "There is a whole division at the SEC that is supposed to be looking at mutual funds. Where have they been?"

The investigation into the fund industry, so far, has been based largely on tips from individuals. But the SEC’s Boston office apparently mishandled information from an informant, forcing him to turn to Massachusetts authorities.

Scannell, who was also allegedly attacked with a brick when market timers found out he was on to them, saw his complaint to the SEC go by the boards for months before he finally went to state regulators, touching off the investigation.

"We’re looking into this matter," SEC Deputy Director of Enforcement Linda Thomsen told Reuters. "We’re going to figure out what happened."

When New York State Attorney General Eliot Spitzer nailed hedge fund giant Canary Capital last month for market timing, much of his information came from three industry informants. Said Thomsen of the SEC’s usual procedures: "With respect to complaints and tips generally, we take them very seriously. They are very important and we are looking

at our procedures for handling those."

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