Pension Managers Eye MFS Exodus

February 4, 2004 ( - Massachusetts Financial Services Co. (MFS), the Boston firm entangled in the fund trading scandal, may lose a sizable chunk of business as pension managers in three states review their $1 billion invested with MFS.

The move by pension managers in California, Oregon, and New Mexico comes as MFS faces possible sanctions from US regulators, Bloomberg News reported.

The Los Angeles Water and Power Retirement Plan put MFS on its probationary “watch list,” investment officer Lesley Kuo said. MFS manages about $240 million for the Los Angeles fund. The Oregon Public Employees’ Retirement Fund and the New Mexico Public Employees’ Retirement Association also are monitoring MFS.

“They are under close scrutiny right now,” Todd Jones, a spokesman for Oregon Treasurer Randall Edwards told Bloomberg. MFS oversees $443 million for Oregon’s public retirement fund. “We’re watching the situation with interest,” he said.

MFS said the US Securities and Exchange Commission (SEC) was 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.

Sun Life Financial Inc. of Toronto, MFS’ parent, has set aside almost $160 million to pay for a settlement with the SEC and state regulators, Bloomberg said. In addition to facing financial sanctions, MFS may reduce the fees it charges and regulators also may suspend the company’s chief executive, John Ballen, and investment chief Kevin Parke, according to unnamed Bloomberg sources (See  Report: MFS Settlement Hits Delay ).

The penalties would be the second-largest won by state and federal regulators in the probe of more than 20 companies in the $7.4-trillion mutual fund industry. Alliance Capital agreed to cut its fees by about $350 million over five years and pay a $250-million sanction.

The SEC is seeking fines and restitution from MFS, and New York state Attorney General Eliot Spitzer and the New Hampshire Bureau of Securities Regulation want fee reductions