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Putnam paying $110 million in fines

Putnam Investments will pay $110 million to settle improper trading allegations brought by federal and Massachusetts regulators.
/ Source: The Associated Press

Putnam Investments will pay $110 million to settle federal and state allegations of improper trading in the first of a wave of cases over so-called market timing, the company and regulators announced Thursday.

Half the money — $5 million in ill-gotten gains and $50 million in penalties — will settle allegations by the Securities and Exchange Commission that Putnam tolerated improper “market timing” trades by fund advisers. Putnam, the nation’s sixth-largest mutual fund company, will pay that money to investors.

Putnam will also pay $5 million in restitution and $50 million in penalties to settle Massachusetts allegations filed last October that it failed to halt market timing by members of a labor union who had 401(k) retirement plans through the Boston-based company.

“This case uncovered a corporate culture that turned a resolute blind eye to the most egregious conduct on the part of its managers who indulged in market timing, as well as the favored fund participants who were allowed to market time at the expense of other shareholders,” said Massachusetts Secretary of State William Galvin, the state’s top securities regulator.

Market timing is the use of quick, in-and-out trades that skim profits from longer-term shareholders. The practice is not illegal but most funds have policies against it.

Putnam was the first investment firm formally accused of wrongdoing in the now-widespread market timing scandal.

It had previously reached a partial settlement with the SEC, but the amount of the fine had not been determined. That settlement was sharply criticized by Massachusetts regulators, who had also brought civil charges against Putnam.

Putnam President and Chief Executive Ed Haldeman said in a statement the settlements “reflect our commitment to put these matters behind us and continue to move forward as a firm focusing on rebuilding investor confidence and delivering consistent, dependable, superior investment performance over time.”

Putnam manages about $227 billion in assets, down from $277 billion before the market timing scandal began.

The company has fired 15 employees in the trading mess. An investigation released last month by independent trustees of the company’s mutual funds found that executives did not regard improper trading by several portfolio managers as serious misconduct and were slow to stop excessive trading by a handful of outside investors.

But the probe also found that, despite shortcomings, Putnam largely did a good job of policing improper trading.

The findings were similar to those of an investigation by company management.