Putnam, SEC Reach Securities Fraud Settlement

November 13, 2003 (PLANSPONSOR.com) - Putnam Investments and the Securities and Exchange Commission (SEC) have reached a settlement on charges the mutual fund company allowed certain traders to carry out market-timing strategies in its funds.

Putnam has agreed to an undisclosed system of calculation to determine how much shareholders will be owed due to the market-timing strategies, the SEC said in a news release. Further, the mutual fund company agreed to the entry of an administrative order under which it will make “significant and far-reaching corporate governance” changes in the wake of the scandal.

Among the changes agreed to are:

  • new employee trading restrictions,
  • the retention of an independent compliance consultant,
  • the undertaking of periodic compliance reviews and certification of compliance with the SEC.
  • enhanced employee trading compliance, and
  • oversight by an independent third party and the SEC of the calculation of the amount of restitution to be made by Putnam for losses attributable to excessive short-term trading by Putnam employees.

The order also contemplates civil monetary penalties to be determined at a later date, and certain best practices in corporate governance, some of which are already followed by Putnam funds, are also a part of this agreement, according to Putnam.

The Boston-based mutual fund company consented to the entry of the order without admitting or denying its findings, but has agreed not to contest the findings in connection with the later determination of a penalty and other monetary relief.   As of yet though, the amount of civil penalty and other monetary relief to be paid by Putnam remains open and will be determined at a later date, the SEC said.

The SEC determined Putnam committed securities fraud by failing to disclose potentially self-dealing securities trading by several of its employees.   Additionally, the SEC found the company failed to take adequate steps to detect and deter this activity through its own internal controls and its supervision of investment management professionals.   Thus, Putnam breached its fiduciary duties in violation of the antifraud provisions of the Advisers Act, the SEC stated.

“The reforms Putnam will undertake as part of the Commission’s order are intended to provide real and substantial protections for mutual fund investors,” Stephen Cutler, Director of the SEC Division of Enforcement, said in the release.

A copy of the SEC’s findings can be found at  http://www.sec.gov/news/press/2003-156.htm .