Putnam to Pay $110 Million in Fund Trading Probes
(Bloomberg) -- Putnam Investments, the sixth-largest U.S. mutual fund manager, agreed to pay $110 million to settle federal and state allegations it failed to disclose improper trading by money managers.
Putnam's penalty "makes clear that self-dealing by mutual fund managers will be severely punished," said Stephen Cutler, the Securities and Exchange Commission's director of enforcement, in a statement. The sanctions are the smallest of four levied so far against fund companies in the 10-month trading investigation.
The SEC, along with state regulators including Massachusetts Secretary of the Commonwealth William Galvin, have now extracted about $1.8 billion in sanctions from companies such as Bank of America Corp. and Alliance Capital Management Holding LP. The probes also have resulted in more than 80 executives losing their jobs including Putnam's former chief executive, Lawrence Lasser.
The case against Boston-based Putnam "uncovered a corporate culture that turned a resolute blind eye to the most egregious conduct," Galvin said in a statement.
Regulators sued Putnam, a unit of Marsh & McLennan Cos., on Oct. 28 for failing to stop fund managers Justin Scott and Omid Kamshad from making frequent trades in funds that were contrary to fund prospectuses and diluted returns for other shareholders. Galvin also sued Putnam over trades by members of a 401(k) union retirement plan.
Putnam Chief Executive Charles "Ed" Haldeman, 55, said in a statement that today's agreements ``reflect our commitment to put these matters behind us and continue to move forward as a firm focusing on rebuilding investor confidence."
Shares of Marsh & McLennan rose $1.26, or 2.8 percent, to $47 in New York Stock Exchange composite trading. Analysts with Morgan Stanley issued a report today saying the settlements didn't affect their "equal-weight" rating on the stock.Fund Outflows
About $54 billion was pulled from Putnam in the fourth quarter and an additional $5.6 billion was yanked from the company's mutual funds in the first two months of this year. The company had $227 billion of assets at the end of March.
At least 15 Putnam employees have left the company since the investigation emerged. In addition to Kamshad and Scott, those leaving include four other money managers.
The SEC settlement requires Putnam to pay $55 million to compensate investors for losses caused by the trading. The sanction equals about 10 times the amount regulators estimate investors lost because of the abusive trading.
Separately, Galvin fined Putnam $50 million and ordered the company to pay $5 million in restitution to the affected funds. "When you look at the fine as a percentage of damages to the fund, the fine is very significant," he said in an interview.