The nation's largest pension fund, Calpers, withdrew $1.2 billion in funds from

Putnam Investments

amid continued protest over the firm's improper mutual fund practices.

The California Public Employees' Retirement System, a powerful force in corporate governance, voted to terminate two contracts with Putnam after a review found that former senior managers of the company had failed to put an end to the improper trading even after they had been alerted to it, according to Calpers President Sean Harrigan.

The decision was also based on concerns that the scandal and investigations by state and federal authorities had distracted the company from managing the funds effectively. Calpers said it would begin reviewing other money managers, their code of ethics and their connection to any ongoing investigations.

Putnam, the nation's fifth-largest mutual fund, had managed $608 million in U.S. equities for Calpers since May 1998, and $609 million in international equities since May 2001. Calpers had paid Putnam a fee of roughly $1 million a year.

Putnam investors

withdrew $7 billion from the fund in the past week, after withdrawing $14 billion in the first week of November. As of Friday, Putnam held $256 billion in assets, down almost 8% from the $277 billion in assets it held at the end of October.

Putnam parent

Marsh & McClennan

(MMC) - Get Report

was shaking off the news, recently trading up 16 cents, or 0.3%, to $44.72.

Several states -- including Massachusetts, Rhode Island and Iowa -- have already taken steps to remove their pension assets from Putnam. The California State Teachers' Retirement System, the nation's third-largest pension fund, is expected to remove assets from Putnam this week.

Late last week, Putnam settled with the

Securities and Exchange Commission

, which found that since 1998 at least six Putnam investment managers engaged in excessive short-term trading of Putnam funds in their personal accounts. The SEC noted gross negligence on the part of Putnam for failing to take adequate steps in curtailing this behavior, and has prescribed a list of remedial actions the firm must take. Two of the six investment managers face separate civil suits brought by the SEC.

New York State Attorney General Eliot Spitzer criticized the settlement, claiming that it was rushed and wasn't far-reaching enough. Meanwhile, the Massachusetts Secretary of the Commonwealth has launched civil charges against the firm, alleging violations of the state's securities law antifraud provisions. Putnam also faces numerous class-action lawsuits and other shareholder actions.