Putnam Investment Management, LLC
United States of America
Before the
Securities and Exchange Commission
Investment Advisers Act of 1940
Release No. 2226 / April 8, 2004
Investment Company Act of 1940
Release No. 26412 / April 8, 2004
Administrative Proceeding
File No. 3-11317
In the Matter of PUTNAM INVESTMENT Respondent. |
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ORDER MAKING FINDINGS AND IMPOSING SUPPLEMENTAL REMEDIAL SANCTIONS PURSUANT TO SECTION 203(e) OF THE INVESTMENT ADVISERS ACT OF 1940 AND SECTION 9(b) OF THE INVESTMENT COMPANY ACT OF 1940 |
I.
The Securities and Exchange Commission ("Commission") instituted administrative and cease-and-desist proceedings pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Sections 9(b) and 9(f) of the Investment Company Act of 1940 ("Investment Company Act") against Putnam Investment Management, LLC ("Putnam" or "Respondent") on October 28, 2003. On November 13, 2003 the Commission entered an Order Making Findings and Imposing Partial Relief, Including a Final Censure, Remedial Undertakings and a Cease-and-Desist Order Pursuant To Sections 203(e) and 203(k) of the Advisers Act and Sections 9(b) and 9(f) of the Investment Company Act ("Partial Settlement Order"), which remains in full force and effect.
II.
Respondent has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings and the findings contained in paragraphs 1 and 4 of Section III of the Partial Settlement Order, which are admitted, Respondent consents to the entry of this Order Making Findings and Imposing Supplemental Remedial Sanctions Pursuant ToSection 203(e) of the Advisers Act and Section 9(b) of the Investment Company Act ("Order"), as set forth below. This Order supplements, but does not supersede, the Partial Settlement Order; provided, however, that to the extent deadlines in this Order and the Partial Settlement Order may conflict, Putnam shall be required to comply with the deadlines imposed by this Order.
III.
A. The findings set forth in Section III of the Partial Settlement Order are hereby incorporated by reference as though fully set forth herein.
B. In determining to accept the Offer, the Commission considered cooperation afforded the Commission staff by Putnam during its continuing investigation and Putnam's agreement to pay a separate $50 million penalty to resolve an enforcement proceeding brought by the Massachusetts Securities Division that alleged, in part, conduct identical to that found in the Partial Settlement Order.
IV.
In view of the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to impose the sanctions agreed to in Putnam's Offer in addition to the sanctions set forth in the Partial Settlement Order. Accordingly, it is hereby ORDERED, effective immediately, that:
A. Disgorgement and Civil Money Penalty. Putnam shall, within 10 days of the entry of this Order, pay $5 million in disgorgement plus a civil money penalty of $50 million for a total payment of $55 million. Such payment shall be: (a) made by United States postal money order or wire transfer, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop 0-3, VA 22312; and (4) submitted under cover letter that identifies Putnam as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to David P. Bergers, Associate District Administrator, Boston District Office, Securities and Exchange Commission, 73 Tremont Street, Suite 600, Boston, Massachusetts, 02108-3912. Such civil money penalty may be distributed pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 ("Fair Fund distribution"). Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to thegovernment for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Putnam agrees that it shall not, in any Related Investor Action, benefit from any offset or reduction of any investor's claim by the amount of any Fair Fund distribution to such investor in this proceeding that is proportionately attributable to the civil penalty paid by Putnam ("Putnam Penalty Offset"). If the court in any Related Investor Action grants such an offset or reduction, Putnam agrees that it shall, within 30 days after entry of a final order granting the offset or reduction, notify the Commission's counsel in this action and pay the amount of the Putnam Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed against Putnam in this proceeding. For purposes of this paragraph, a "Related Investor Action" means a private damages action brought against Putnam by or on behalf of one or more investors based on substantially the same facts as those set forth in the Partial Settlement Order.
Undertakings
B. Distribution of Disgorgement and Penalty
1. Putnam shall retain, within 10 days of the date of entry of the Order, the services of an Independent Distribution Consultant acceptable to the staff of the Commission and the independent Trustees of the Putnam funds. The Independent Distribution Consultant may be, but is not required to be, the same person as the Independent Assessment Consultant contemplated by Section IV.E of the Partial Settlement Order. The Independent Distribution Consultant's compensation and expenses shall be borne exclusively by Putnam. Putnam shall cooperate fully with the Independent Distribution Consultant and shall provide the Independent Distribution Consultant with access to its files, books, records, and personnel as reasonably requested for the review.
a. Putnam shall require that the Independent Distribution Consultant develop a Distribution Plan for the distribution of all of the $55 million in disgorgement and penalty, and any interest or earnings thereon, according to a methodology developed in consultation with Putnam and acceptable to the staff of the Commission and the independent Trustees of the Putnam funds. The Distribution Plan shall provide for investors to receive, inorder of priority, (i) their aliquot share of losses as calculated by the Independent Assessment Consultant pursuant to Section IV.E of the Partial Settlement Order, and (ii) a proportionate share of advisory fees paid by funds that suffered such losses during the period of such market timing.
b. The restitution amount that Putnam is required to pay pursuant to Section IV.E.5 of the Partial Settlement Order shall be paid out of the payments required by Section IV.A herein. In the event that the Independent Assessment Consultant determines that full restitution under Section IV.E. of the Partial Settlement Order would require a payment of more than $10 million, Putnam agrees that it shall make an additional payment of the amount above $10 million. Payment of such amount shall be made in the manner provided in Section IV.A herein for inclusion in the Fair Fund within 15 days of the final determination of the Independent Assessment Consultant that full restitution would require a payment of more than $10 million.
2. Putnam shall require that the Independent Distribution Consultant submit a Distribution Plan to Putnam and the staff of the Commission no more than 100 days after the date of entry of the Order.
3. The Distribution Plan developed by the Independent Distribution Consultant shall be binding unless, within 130 days after the date of entry of the Order, Putnam or the staff of the Commission advises, in writing, the Independent Distribution Consultant of any determination or calculation from the Distribution Plan that it considers to be inappropriate and states in writing the reasons for considering such determination or calculation inappropriate.
4. With respect to any determination or calculation with which Putnam or the staff of the Commission do not agree, such parties shall attempt in good faith to reach an agreement within 160 days of the date of entry of the Order. In the event that Putnam and the staff of the Commission are unable to agree on an alternative determination or calculation, the determinations and calculations of the Independent Distribution Consultant shall be binding.
5. Within 175 days of the date of entry of this Order, Putnam shall require that the Independent Distribution Consultant submit the Distribution Plan for the administration and distribution of disgorgement and penalty funds pursuant to Rule 610 [17 C.F.R. § 201.610] of the Commission's Rules of Practice. Following a Commission order approving a final plan of disgorgement, as provided in Rule 613 [17 C.F.R. § 201.613] of the Commission's Rules of Practice, Putnam shall require that the Independent Distribution Consultant, with Putnam, take all necessary and appropriate steps to administer the final plan for distribution of disgorgement and penalty funds.
6. Putnam shall require that the Independent Distribution Consultant, for the period of the engagement and for a period of two years from completion of the engagement, not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Putnam, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such. Putnam shall require that any firm with which the Independent Distribution Consultant is affiliated in performance of his or her duties under the Order not, without prior written consent of the independent Trustees and the staff of the Commission, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Putnam, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement.
C. Deadlines. For good cause shown, the Commission's staff may extend any of the procedural dates set forth above.
By the Commission.
Jonathan G. Katz
Secretary