The U.S. Securities and Exchange Commission has reached a settlement deal with Boston-based Putnam Investment Management LLC concerning alleged market-timing trades by its employees.

The SEC says that Putnam has agreed to undertake significant corporate governance, compliance, and ethics reforms. It has also agreed to a process for calculating and paying restitution for losses attributable to excessive short-term and market timing trading by its employees. The amount of a civil penalty and other monetary relief to be paid by Putnam remains open and will be determined at a later date.

The commission found that Putnam committed securities fraud by failing to disclose potentially self-dealing securities trading by several of its employees. It also found that Putnam failed to take adequate steps to detect and deter such trading activity through its own internal controls and its supervision of investment management professionals.

By virtue of this conduct, Putnam breached its fiduciary duties. Putnam consented to the entry of the commission’s order without admitting or denying its findings, but has agreed not to contest the findings in connection with the later determination of a penalty and other monetary relief.

Among the reforms Putnam will implement are requirements that: employees who invest in Putnam funds hold those investments for at least 90 days, and in some cases, as long as one year; Putnam’s chief compliance officer report to the fund boards’ independent trustees all breaches of fiduciary duty and violations of the federal securities laws; a Code of Ethics Oversight Committee be set up to review violations of the Code of Ethics and report breaches to the fund boards of trustees; an Internal Compliance Controls Committee be created to review compliance controls and report to the fund boards of trustees on compliance matters; an Independent Compliance Consultant be retained to review Putnam’s policies and procedures designed to prevent and detect breaches of fiduciary duty, breaches of the Code of Ethics, and federal securities law violations by Putnam and its employees; and, at least once every two years, Putnam will have an independent, a third party conduct a review of the firm’s supervisory, compliance and other policies and procedures in connection with the firm’s duties and activities on behalf of and related to the Putnam funds.

In the area of corporate governance, Putnam also agreed: that the fund boards of trustees will have an independent chairman; that it will consist of at least 75% independent members; that no board action may be taken without approval by a majority of the independent directors; and that Putnam will make annual disclosure to fund shareholders of any action approved by a majority of the independent trustees, but not approved by the full board; that the trustees will hold elections at least once every five years, starting in 2004; and, that the boards trustees will have their own, independent staff member who will report to and assist the fund boards in monitoring Putnam’s compliance with the federal securities laws, its fiduciary duties to shareholders, and its Code of Ethics.

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“The reforms Putnam will undertake as part of the commission’s order are intended to provide real and substantial protections for mutual fund investors,” Stephen Cutler, director of the SEC division of enforcement, said in a statement. “The required enhancements to the board oversight and compliance functions at Putnam should strengthen all aspects of Putnam’s fund operations and provide investors with uncompromised representation by their fiduciaries in the boardroom and at the management company. In the meantime, we will continue pursuit of our request for penalties and other monetary relief in the ongoing administrative proceeding.”

The SEC is still taking civil injunctive action charging two Putnam employees, portfolio managers Justin Scott and Omid Kamshad, with securities fraud for engaging in excessive short-term trading of Putnam funds in their personal accounts.