Putnam Agrees to Pay $55 Million to Resolve SEC Enforcement Action Related to Market Timing by Portfolio Managers
FOR IMMEDIATE RELEASE
All $55 Million, Which Consists of a $50 Million Penalty and $5 Million in Disgorgement, Will Be Returned to Investors
Washington, D.C., April 8, 2004 -- The Securities and Exchange Commission today announced the final settlement of an enforcement action against Putnam Investment Management LLC (Putnam), pursuant to which the Commission ordered Putnam to pay a $50 million civil penalty and $5 million in disgorgement for violating federal securities laws by failing to disclose improper market timing trading by Putnam portfolio managers. All of the money obtained by the Commission will be distributed to investors harmed by the market timing trading.
Today's Order supplements a Commission Order entered on Nov. 13, 2003 (November 13 Order), pursuant to which Putnam agreed to undertake significant and far-reaching corporate governance, compliance, and ethics reforms. In the November 13 Order, the Commission found that, beginning as early as 1998, at least six Putnam investment management professionals engaged in excessive short-term trading of Putnam mutual funds in their personal accounts. Four of those employees engaged in such trading in funds over which they had investment decision-making responsibility. The November 13 Order further found that although Putnam became aware in 2000 that several investment management employees were engaging in potentially self-dealing short-term trading of mutual fund shares, Putnam failed to disclose this potentially self-dealing securities trading to the boards of the mutual funds it managed and the funds' shareholders. The November 13 Order censured Putnam and ordered it to cease and desist from violations of the antifraud provisions of the Investment Advisers Act of 1940 and other provisions of the federal securities laws. The November 13 Order left open the amount of civil penalty and other monetary relief Putnam would be required to pay.
Stephen M. Cutler, Director of the SEC Division of Enforcement, said, "The significant monetary sanctions we announce today complete the settlement process initiated last November when we imposed far-reaching governance and compliance reforms designed to protect Putnam's mutual fund shareholders. Putnam's $55 million payment — all of which will be placed in a restitution fund for the benefit of investors — makes clear that self-dealing by mutual fund managers will be severely punished. More generally, this case demonstrates the Commission's continuing commitment to investor protection in its enforcement efforts through a combination of tough monetary sanctions, forward-looking structural relief and victim restitution."
David P. Bergers, Associate District Administrator for the SEC's Boston District Office, said, "Putnam's failure to disclose market timing trading by its investment professionals in mutual funds they managed constituted a serious breach of fiduciary duty. The penalty imposed in this case reflects the egregiousness of Putnam's conduct and sends the message that such behavior will be firmly punished."
The Commission's Order calls for the appointment of an Independent Distribution Consultant who is charged with developing a plan for distributing the $55 million in disgorgement and penalties to harmed investors. The $55 million will be distributed to investors in order of priority: first, as compensation to investors for losses attributable to excessive short-term trading and market timing trading activity by Putnam employees and, second, as compensation for advisory fees paid by mutual fund clients who suffered such losses.
The Commission's previously filed civil injunctive action charging two Putnam employees, portfolio managers Justin M. Scott and Omid Kamshad, with securities fraud for engaging in excessive short-term trading of Putnam funds in their personal accounts, is pending.
The Securities Division for the Commonwealth of Massachusetts is today announcing that it has settled related charges against Putnam calling for the payment of an additional $55 million.
The Commission's investigation is continuing.
Stephen M. Cutler (202) 942-4500
Director, SEC Division of Enforcement
Linda Chatman Thomsen (202) 942-4501
Deputy Director, SEC Division of Enforcement
David P. Bergers (617) 424-5927See Also: Administrative Proceeding Release IA-2226
Associate District Administrator, SEC Boston District Office