Report: MFS Works Out Scandal Settlement

January 27, 2004 ( - The long-awaited settlement between Massachusetts Financial Services Co. (MFS) and regulators has apparently been hammered out and calls for the firm to pay $225 million in penalties and cut its management fees by $125 million.

Citing unnamed sources, the Wall Street Journal said the pact settles charges that MFS improperly allowed fast-moving traders to skim profits from long-term investors in its mutual funds (See  MFS Nears Settlement As Late Trading Allegations Emerge ). Both the US Securities and Exchange Commission (SEC) and New York Attorney General Eliot Spitzer are involved in the agreement with MFS.

If finalized, the agreement would result in the second-largest penalty imposed so far in the five-month-old mutual-fund scandal. While the general terms of the agreement have been decided, final approval is needed from the SEC commissioners who rarely turn back such agreements with its staff.

Under the pact’s terms, the Boston-based MFS would pay $175 million in disgorgement and $50 million in fines, according to people familiar with the talks, the Journal said. The fee reductions, which would be part of MFS’s agreement with Spitzer’s office but not the SEC, amount to $25 million annually over five years, according to Journal sources.

MFS is also expected to agree to a raft of changes in the way the firm oversees its funds and to provide greater fee disclosure. News reports earlier this week indicated that MFS would likely not face criminal charges because regulators could not amass sufficient evidence against it (See   Report: MFS Likely to Escape Trading Charges ).