NEW YORK -- Putnam Investments, the embattled financial services company, agreed Thursday to pay $110 million to settle federal and Massachusetts allegations that firm employees profited from their own improper short-term trading in Putnam's mutual funds.
Under the twin settlements, Putnam shareholders will receive a total of $60 million. The settlement includes $10 million in restitution -- $5 million to be paid to the Securities and Exchange Commission and $5 million to be paid to Massachusetts. The firm will also pay $50 million in penalties to the SEC, which will be distributed to shareholders. An additional $50 million in penalties will be paid to Massachusetts.
Putnam has been one of the hardest-hit fund companies since scandal erupted in the $7.6 trillion industry in September. Investors have pulled more than $55 million from the company since it acknowledged that numerous insiders, including at least four former portfolio managers, profited at the expense of customers by engaging in a kind of short-term trading called market timing.
"Putnam has been outed as a very corrupt culture ... that allowed fund managers to personally profit," said Massachusetts Secretary of the Commonwealth William Galvin, whose office handled the state investigation. He said his office is continuing to investigate whether Putnam funds improperly used marketing fees to influence 401(k) and union investment plan managers to chose the firm's funds.
Putnam chief executive Charles Haldeman, who was brought in last year after the firm ousted chief executive Lawrence Lasser, said the deals "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."
Nearly a dozen firms have been investigated on suspicion that they allowed favored customers to engage in timing, which seeks to exploit differences between a fund's share price and the value of its underlying assets. But Putnam is the first to settle allegations of personal trading by insiders. The fund company drew particularly sharp criticism and paid a proportionally larger penalty -- 10 times what investors lost because of the market timing -- than other firms that have settled timing allegations.
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