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SEC Announces 2 Fund Settlements

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Federal regulators have imposed a total of $60 million in fines on money management units at Citigroup Inc. and Marsh & McLennan Companies Inc.[@@]

The U.S. Securities and Exchange Commission has accused Putnam Investments, a subsidiary of Marsh & McLennan, New York, of using fund assets to pay dozens of broker-dealers for “prime shelf space” from 2000 to 2003 without disclosing that use of fund assets to shareholders.

The SEC has accused Citigroup Global Markets Inc., a subsidiary of Citigroup, New York, of giving certain mutual fund companies prime shelf space in exchange for payments from the fund companies that were not fully disclosed to customers.

The SEC also has accused Citigroup Global of selling Class A shares, which come with relatively high fees and are aimed at small investors, to investors who qualified for Class B shares, which come with relatively low fees and are aimed at investors with a total of at least $50,000 in invested assets. Fund companies call the asset levels that let clients buy the lower-priced shares “breakpoints.”

Putnam has agreed to add $40 million to its mutual funds to settle the SEC charges lodged against it, and Citigroup Global has agreed to pay $20 million in fines to settle the SEC charges it faced.

Neither company is admitting or denying the commission’s findings.

In related news, the National Association of Securities Dealers Inc., Washington, has imposed $21 million in fines on Citigroup Global and units of American Express Company, New York, and J.P. Morgan Chase & Company, New York, in connection with allegations of mutual fund breakpoint violations.

Regulators at the SEC and state agencies began investigating allegations of problems with the management of Putnam funds in 2003, and Putnam already has agreed to pay more than $190 million in fines and restitution in connection with charges that loose supervision let speculators use Putnam funds to “time the market,” or rush money in and out of funds to profit from delays in the spread of stock price information.

The investigations of Putnam and separate investigations by state and federal regulators of compensation arrangements at Marsh & McLennan’s insurance brokerage operations led to turmoil that contributed to the departure of the company’s former chairman, Jeffrey Greenberg, in October 2004.

The new settlement concludes the investigation of the shelf space issue for Putnam, Putnam spokeswoman Nancy Fisher says.

Fisher emphasizes that Putnam has cooperated with the SEC and has made extensive changes in its fund management practices since 2003.

“Putnam remains committed to doing what is right for its clients,” Fisher says.

At Citigroup, company spokeswoman Kim Atwater says Citigroup is pleased to resolve the SEC investigation of its mutual fund sales practices.

“The firm cooperated fully with the SEC and the NASD and took effective action to put measures in place that further client transparency and education,” Atwater says.


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