In three separate cases, federal regulators fined Putnam Investments, Citigroup Inc., and a smaller brokerage firm to settle allegations they concealed from customers the fact that brokers were paid to recommend certain mutual funds, creating a conflict of interest.
Putnam Investments yesterday finalized with federal authorities a $40 million settlement. The Securities and Exchange Commission also said yesterday that Citigroup Inc. would pay $20 million and Capital Analysts, a brokerage firm based in Radnor, Pa., agreed to a fine of $100,000 and $350,000 in restitution plus interest.
The SEC said that from 2000 through 2003 Putnam used brokerage commissions to repay 60 brokers for giving the firm's mutual funds ''heightened visibility" among the investments those brokers offered their clients, but did not tell investors about these deals.
The SEC has been investigating ''shelf-space" arrangements and other sales-related strategies in the industry to ferret out what regulators say are potential conflicts of interest between mutual funds and brokers that would benefit the companies at the expense of individual investors.
In a similar case brought by the SEC last year, Boston-based MFS Investment Management was penalized $50 million for failing to adequately disclose its shelf-space arrangements.
Citigroup and Putnam, a unit of Marsh & McLennan Cos., neither admitted nor denied wrongdoing as part of the agreements.
The SEC also alleged that Citigroup sold a type of mutual fund shares known as class B shares to certain large-scale customers who could have earned a higher return from another type of shares.
In a related move, the National Association of Securities Dealers disclosed that Citigroup, American Express Financial Advisors Inc., and JPMorgan Chase & Co. had agreed to pay a total of $21.25 million for alleged violations in sales of mutual funds.
The NASD, which is the brokerage industry's self-policing organization, fined Citigroup $6.25 million, American Express Financial Advisors $13 million, and JPMorgan Chase $2 million. The investment firms, which also were censured by the organization, neither admitted nor denied wrongdoing.
The regulators' moves were the latest enforcement actions over alleged abuses in the trading and marketing of mutual funds.
Globe staff writer Andrew Caffrey contributed material to this report.