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SEC Eyes MFS In Market-Timing Investigation

Dec 9, 2003 | USA TODAY

The mutual fund industry investigation heated up again on Monday as the parent company of MFS Investment Management said it faces regulatory enforcement action related to trading irregularities.

Sun Life Financial said in a statement that the Securities and Exchange Commission intends to recommend enforcement action against its mutual fund unit, MFS, alleging misleading market-timing disclosures and breach of fiduciary duty.

Boston-based MFS is the 11th-largest fund company in the USA. It said it is cooperating with the SEC.

Also Monday, embattled Putnam Investments disclosed that it has severed ties with the retirement plan of the Boilermakers Local Lodge No. 5. John Brown, head of Putnam's institutional business, said the action is one step that the firm is taking "to enforce strict overall trading policies to protect the interests of our long-term shareholders." A civil fraud complaint filed against Putnam by the Massachusetts secretary of state in October alleged that at least 28 members of Boilermakers Local Lodge No. 5 were permitted to market time Putnam funds in their retirement plan. One person made $1 million over three years, it claimed. The union has not been charged with any wrongdoing.

Market timing involves frequent trading, often in international funds, to exploit "stale" prices due to time zone differences. It is legal but might violate a fund's rules or fiduciary duty to look out for the interests of shareholders. Market timers typically profit at the expense of long-term shareholders.

Putnam has been hard hit by the charges. Since it was sued by regulators, it has lost about $30 billion in assets much of it from public pension funds.

On Monday, a group of four large public pension funds went further. Anticipating that a proposed SEC rule to give shareholders easier access to corporate proxies will soon take effect, they said they plan to nominate their own candidates to the board of Marsh & McLennan, Putnam's parent company.

The four pensions are AFSCME Employees Pension Plan, New York State Common Retirement Fund, California Public Employees' Retirement System and California State Teachers' Retirement System. Together, they hold 6.85 million shares of Marsh & McLennan, or 1.3% of the company.

"It is tragic that the board at Marsh & McLennan lacked the independence needed," said Gerald McEntee, AFSCME Employees Pension Plan chairman.


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