This time, the SEC said that the beleaguered fund company did not disclose to the fund boards and shareholders conflicts of interest associated with shelf space at broker/dealers. The company has not admitted to or denied findings but has agreed to settle the matter.
"We are following through on our commitment to take a hard look at the practices of mutual fund advisers who directed the use of fund assets for their own benefit," said Ari Gabinet, district administrator of the SEC's Philadelphia Office, which investigated the case. "Financial arrangements that benefit a fund adviser at the potential expense of fund shareholders must be adequately disclosed to the fund's board."
Putnam Retail Investment Limited Partnership (PRM), the fund company's distributor and affiliate, entered into marketing arrangements with more than 80 broker/dealers designed to promote Putnam Funds. All these agreements were primarily based on formulas related to gross or net fund sales and/or asset retention.
Between 2000 and 2003, more than 60 broker/dealers received directed-brokerage commissions from Putnam Funds, a practice banned by the SEC last summer. The rest received cash payments, which ranged between 10 and 35 basis points for gross or net sales and 1.5 to 15 basis points for retained assets.
Putnam will now have a senior level staffer implement and maintain policies and procedures regarding its distribution marketing agreements and disclosures to the Putnam fund boards and shareholders. The company is also paying a "nominal" disgorgement fee of $1.