The SEC found that Lawrence J. Lasser (Lasser), who was the Chief Executive Officer of Putnam LLC and President of the investment adviser to the Putnam Funds, Putnam Investment Management, LLC (Putnam), did not ensure that Putnam fulfilled its fiduciary duty to disclose adequately to the Putnam Funds' Board of Trustees the use of fund brokerage commissions to pay for "shelf space" arrangements or potential conflicts of interest created by this use.
The SEC specifically found that from at least January 1, 2000 through November 1, 2003, Putnam directed brokerage commissions on the Putnam Funds' portfolio transactions to broker-dealers for "shelf space" or heightened visibility within their distribution systems. The Putnam Funds' distributor, Putnam Retail Management Limited Partnership (PRM), had entered into arrangements with over 80 broker-dealers whereby the broker-dealers provided services designed to promote the sale of the Putnam Funds. Approximately 20 of those broker-dealers were paid in cash while over 60 of them received brokerage commissions from the Putnam Funds' portfolio transactions. When Putnam directed fund brokerage commissions to broker-dealers in connection with these arrangements, its affiliate, PRM, did not use its own assets to pay for these obligations. Because PRM and Putnam were under common control, the entire Putnam organization benefited from the use of fund assets to defray such expenses. However, Putnam did not adequately disclose this conflict of interest to the Putnam Board. Putnam also did not adequately disclose to the Putnam Board the potential conflict of interest presented for its Equity Trading group, which was faced with directing trades to the broker-dealers designated by PRM for these arrangements, while at the same time satisfying its best execution obligations.