Sun Life Financial Inc. confirmed in a news release that the MFS pact not only includes a settlement with the US Securities and Exchange Commission (SEC), but agreements with New York State Attorney General Eliot Spitzer and the State of New Hampshire Bureau of Securities.
The SEC has been pursuing allegations that its fund prospectuses contained false and misleading information about policies on short-term trading – which, along with late trading, is the focus on the continuing federal/state fund probe (See MFS Misses Market Timing in 11 Funds ). MFS oversees about $140 billion, including $41 billion for institutional clients.
Spitzer said in a Thursday news release that, despite the representations in its prospectuses, “In fact, from at least late 1999 to 2003, some MFS funds were open to market timers and were being heavily timed.” Further, Spitzer said that MFS held $44 billion of its assets under management in an “unrestricted” status which MFS allowed to be secretly timed. The 10 MFS funds open to market timing were Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund, MFS Emerging Growth Fund, MFS Research Fund, MFS Total Return Fund, MFS Money Market Fund, MFS Cash Reserve Fund, MFS Government Securities Fund, MFS Government Mortgage Fund and MFS Bond Fund.
The SEC settlement announcement is at http://www.sec.gov/news/press/2004-14.htm .
As part of the deal, MFS has agreed to pay the $225 million to compensate fund shareholders including a $50 million penalty. MFS agreed with Spitzer to reduce fees on the funds it advises by approximately $25 million annually over the next five years, and with the State of New Hampshire Bureau of Securities Regulation to pay a $1 million administrative fine. MFS Chief Executive Officer John Ballen and President Kevin Parke have agreed with the SEC to suspensions from the securities industry for nine and six months, respectively, and have each agreed to pay approximately $315,000, including a $250,000 penalty.
According to the Sun Life announcement, Robert Manning has been named Chief Executive Officer, President and Chief Investment Officer of MFS. Manning, who joined MFS in 1984, is a member of the Management Committee and the Board of Directors of MFS and has served as Chief Fixed Income Officer since 2001. Ballen, a Harvard graduate, joined MFS as an analyst and has been credited in reinvigorating the firm by making bigger bets on technology stocks during the 1990s, news reports said.
The suspension of Ballen and Parke sends the strongest message yet by regulators that they intend to clean up the industry after finding dozens of firms engaged in market timing, according to news reports.
Sun Life said investigations by the SEC and MFS uncovered evidence that third parties placed illegal late trades in MFS funds, without MFS’ knowledge and in violation of MFS’ contracts with broker/dealers who place such trades. Neither the SEC nor the state agencies involved alleged that there is any evidence that any MFS employee engaged in any criminal activity, or was knowingly involved in late trading, Sun Life said.
MFS is the latest in a string of companies to settle with regulators. Last year deals were reached with Boston-based Putnam Investments and New York-based Alliance Capital.