Report: MFS Settlement Hits Delay

January 28, 2004 ( - The long-rumored $225 million settlement of improper-trading charges against mutual-fund giant Massachusetts Financial Services (MFS) has apparently been pushed back, according to a news report. reported that the deal was delayed, likely until next week. Formal announcement had been anticipated this week, but details are still being discussed and negotiations could unravel before a deal is reached, CBS.MarketWatch said its sources indicated.

Various reports have indicated in recent days that the Boston-based MFS, a unit of Canadian insurer Sun Life Financial reportedly is near a deal with the US Securities Exchange Commission (SEC) and state regulators in New York and New Hampshire (See  Report: MFS Works Out Scandal Settlement ).

Under terms of the expected agreement, MFS would pay $225 million, including the return of $175 million in ill-gotten gains and a $50 million penalty, to settle claims with the SEC. MFS also would cut fund-management fees by $125 million, equal to $25 million annually over five years, as part of an agreement with New York Attorney General Eliot Spitzer.

Sun Life, which owns 93% of MFS, must approve the settlement, along with the MFS board. In addition, approval is needed from SEC commissioners, who are set to meet Thursday.

Last month, MFS said regulators planned action against it for making false and misleading statements. The nation’s 11th largest mutual fund company allegedly permitted hedge funds and other privileged investors to engage in frequent trading of its funds at the expense of long-term shareholders.

If the deal happens, its fee-cutting arrangement would mirror an earlier agreement that Spitzer won from Alliance Capital Management Holding in December. At that time, Alliance agreed to reduce fees by $70 million a year for five years, or $350 million, to settle allegations of improper trading (See  Alliance, Regulators Reach Settlement ).