Putnam Investments agreed to pay $110 million for its mutual fund trading misdeeds on Wednesday, settling on an amount far less than what regulators indicated they would seek if the case went to litigation.

The firm agreed to pay $5 million in disgorgement and $50 million in civil penalties to resolve matters with the Securities and Exchange Commission. Additionally, Putnam is to pay another $50 million fine and $5 million in restitution in accordance with a deal struck with Massachusetts Secretary of the Commonwealth William Galvin.

According to previously filed court documents, the SEC was planning to ask an administrative court judge to make Putnam pay a combination of disgorgement and penalties that could potentially tally the largest settlement ever. Both sides were scheduled to meet in court on April 19.

The SEC had said it wanted Putnam to pay fines of up to $138 million for the 251 illegal trades the firm admitted its employees made. The SEC also wanted fines for the "many more additional improper trades" it was planning to prove in court.

On top of that, the SEC said the firm kept investors in the dark about the wrongdoing at Putnam for four years, all the while collecting management fees on money that would eventually walk out the door following scandal developments. The SEC had said it wanted that fee money returned too, which could have brought the overall tally to more than $800 million, according to MME calculations, aided by Lipper.

However, the hearing was a gamble neither side was apparently willing to take. The SEC was basing a number of its arguments on ambitious theories that may have been difficult to prove to a judge, some lawyers say.

Other industry watchers note that administrative law judges have not been awarding significant penalties, and that even though the SEC lawyers have the ability to appeal any decision to the Commission, a settlement was their best option.

As for Putnam, a loss in court could have been crushing. In addition to having angry regulators unveiling all of the corporate wrongdoing out in the open, the firm’s misdeeds would have been back in the spotlight again.

Some see the SEC pre-hearing brief as an attempt by regulators to force Putnam to settle, by threatening the worst.

"The SEC always carries a big stick, and it is well known in the industry that publicly traded companies are almost forced to settle because the risks are too high," said Lex Bono, a partner and chair of the corporate litigation practice group of Blank Rome, LLP.

"The SEC asks for as much as it can and pushes beyond the envelope some times," Bono said. "The SEC often advances theories that have never been recognized by court. The SEC sometimes tries to incrementally change the law by getting people to settle based on their theories."

Bono said the Putnam settlement will have a deterrent effect and it is something the SEC will now display to the industry. "I don’t believe it’s a home run in terms of a penalty, but the SEC did get what it wanted on a number of levels," Bono said, noting the structural changes Putnam has made to its business and how Putnam will pay a penalty several times what the damage was.

For the record, the $50 million penalty was 10 times the amount of damage deemed to be done. The SEC has typically worked on a one-to-one, damage-to-fine ratio, and has not surpassed that level yet in the scandal.

"Putnam breached its fiduciary duty when it failed to disclose potentially self-dealing trading by its portfolio managers," said David P. Bergers, Associate District Administrator for the SEC’s Boston District Office. "The monetary sanctions imposed send a strong message that such conduct will not be tolerated."

Although the amount is far less than what the SEC indicated it would shoot for earlier, it is still a fair settlement, according to Don Phillips, Morningstar’s managing director. "It struck me as being in the right ballpark," Phillips said. "It’s a number that’s not big for the sake of being big. It’s grounded in what the actual damage to shareholders was," he said.

"There are two penalties a firm pays - the fine and then the price in the court of public opinion," Phillips said. "Putnam has paid by far the biggest price in the court of public opinion."

As for Putnam, the firm said it is looking forward, not back. "These settlement agreements with the SEC and Secretary Galvin’s Office 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," said Ed Haldeman, Putnam president and CEO, in a statement.

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