Details Emerge About Putnam Settlement

April 9, 2004 ( - Putnam Investments has not only reached a record breaking settlement in terms of severity of the monetary fine in relation to actual investor damage, but the settlement also includes an unusually large amount of fine distribution and culpability information.

Thursday, the Boston-based mutual fund firmagreed to pay $10 million in disgorgement and a $100 million penalty in agreements with theU.S.Securities and Exchange Commission (SEC) andMassachusetts Secretary of State William Galvin; asum that represents the largest penalty yet, relative to actual harm done to customers.   Overall, Putnam’s $110 million payout is 10 times larger than the damage done to investors by the trading, the Boston Globe is reporting.

Further, unlike the other settlements surrounding market-timing and late-trading allegations, the Putnam settlement is the only one as of yet in which the firm admitted guilt.   To date, regulators have reached agreements resulting in civil penalties and disgorgements with Alliance Capital Management, Massachusetts Financial Services Co. and FleetBoston Financial Corporation. Detailed in the agreement of the settlement are civil penalties and disgorgements, but in each instance the same language is used – the firm neither admits nor denies wrongdoing in the matter.   In addition, the SEC reached an “agreement in principal with the same language used.

Also not laid out in the other agreements, but provided for in Putnam’s release of information were detailed plans for the distribution of disgorgement and civil penalties.   Of the $110 million Putnam agreed to pay, the U.S. Securities and Exchange Commission (SEC) will devote all of its $55 million to shareholders or the funds. The state will return $5 million to the Putnam funds; the other $50 million will go into the general coffers of the Commonwealth.

To facilitate the distribution of the monetary payouts, the SEC has outlined for the mutual fund companies the process by which the distribution is to take place.   Under the “Distribution of Disgorgement and Penalty” section of Administrative Proceedings released by the SEC, within 30 days of the order being approved by the Commission the fund company is to retain an Independent Distribution Consultant that is “acceptable to the staff of the Commission and the independent directors” of the fund.   Already ahead of the game, Putnam announced the retention, at the firm’s expense, of Harvard Business School professor Peter Tufano as a consultant to assess the repayment of funds to investors.   The distributor of the funds has not yet been named by Putnam, but there is still time.

Calls to each of the other fund companies that have reached settlements with regulators produced the same result – it is still too early in the process to release the name of the Independent Distribution Consultant to plan sponsors, and the rest of the public.

Not surprisingly, Putnam’s top brass has been eager to put the scandal behind them.   Part of this process has been a purging of executives and others involved in the scandal which continued yesterday when the firm announced Gordon Silver, a senior managing director and chief administrative officer, would retire and be replaced by James Pappas, who will be in charge of trustee relations, the Globe report said.