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MFS To Pay $255M, Execs Barred In Trading Probe

Feb 6, 2004 | USA TODAY

Massachusetts Financial Services agreed Thursday to pay $225 million in fines and restitution and cut its mutual fund fees by $125 million to settle charges of widespread market timing.

Under terms of the agreement with the Securities and Exchange, CEO John Ballen and President Kevin Parke will be barred from serving as an officer or director of MFS or any other mutual fund firm for three years. The two also will each pay more than $300,000, including $250,000 in penalties.

The sweeping settlement is the first time since the onset of the mutual fund scandal in September that regulators have censured a top fund executive though some firms have forced out CEOs because of trading infractions.

According to the SEC, Ballen and Parke implemented a policy permitting market timing at the same time that they signed documents stating that MFS funds prohibited the practice.

Sun Life Financial, the Toronto-based parent of MFS, said Robert Manning, 40, has been named CEO, president and chief investment officer. Manning joined the company in 1984 and most recently was its chief fixed income officer.

Without admitting wrongdoing, MFS reached settlements with the SEC, New York Attorney General Eliot Spitzer and New Hampshire securities regulators. The firm will pay $225 million to compensate injured investors, including $50 million in penalties. It also agreed to take a number of steps to beef up corporate governance.

In a separate agreement reached with Spitzer's office, MFS will cut mutual fund management fees charged to investors by an estimated $125 million over the next five years. It will also pay a $1 million fine to New Hampshire regulators.

MFS, the USA's 11th-largest fund company, allegedly permitted certain investors to engage in market timing despite rules against the practice. Market timing involves frequent trading to exploit "stale" prices, typically due to time zone differences. It is legal but might violate a fund's rules. It can give market timers a profit at the expense of long-term shareholders.

MFS had an undisclosed policy of allowing market timing in 11 funds, the SEC said. By last spring, market timers constituted 5% of the assets in those funds.

During its investigation, the SEC uncovered evidence of illegal late trading in certain MFS funds. MFS said the illegal trades were conducted without its knowledge and in violation of its agreements with brokers who place such trades. Late trading is the illegal practice of buying and selling funds after the 4 p.m. ET market close but getting the 4 p.m. price.

"We know who the late traders are," says Peter Bresnan, acting district administrator for the SEC's Boston office. "We will find them, and they will be punished."


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