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Regulation

Putnam settles with SEC for $1 million over prearranged RMBS cross trades

Securities and Exchange Commission headquarters, Washington

Putnam Investment Management agreed to pay $1 million to the Securities and Exchange Commission to settle charges that the firm prearranged cross trades of residential mortgage-backed securities to favor some clients over others, according to an administrative order on the SEC website.

Also, Zachary Harrison, former portfolio manager of Putnam's structured credit group, agreed to pay a $50,000 fine and serve a nine-month suspension from the financial services industry to settle similar charges, according to the order.

The activity occurred April 2011 to September 2015, the order said.

According to the SEC, Mr. Harrison prearranged with broker-dealers to temporarily sell RMBS and signaled to some clients that the bonds would be repurchased at a small markup, usually the next business day. The SEC order said those actions benefited clients who purchased the cross-traded bond over the ones selling the bond.

Putnam did not properly supervise Mr. Harrison's activities, the SEC said, and the firm generally had training and monitoring procedures related to cross trading.

The firm did not admit to nor deny the charges, the SEC said, but in addition to the settlement, Putnam agreed to pay $1.1 million in restitution to affected clients.

In a statement, Putnam said it had terminated Mr. Harrison in 2016 when it learned of the activity and voluntarily reimbursed the affected portfolios. The company also "has implemented enhanced policies and procedures recommended by an outside compliance consultant to ensure that this type of trading activity does not reoccur."