Manulife Financial Corp. says it has received a subpoena from New York State Attorney General Eliot Spitzer as part of his widening investigation into improper trading practices in the U.S. mutual fund industry.
The Toronto-based insurer said in regulatory filings it has also received requests for information from a handful of regulators on both sides of the border, including the U.S. Securities and Exchange Commission, the National Association of Securities Dealers and the Ontario Securities Commission.
Manulife (TSX:MFC) said Spitzer’s subpoena concerned “market-timing” and late trading of mutual funds, including funds that form the backbone of the insurer’s variable life and annuity products in the United States.
As well, John Hancock Financial Services Inc., the Boston insurance company that Manulife recently agreed to buy in a blockbuster $15-billion deal, also confirmed in the filing it has been contacted by regulators as part of their probe of the industry.
The company said John Hancock has received information requests from both the SEC and the NASD. It also confirmed that John Hancock received a subpoena from the Secretary of State of Massachusetts, one of a number of states taking part in the mutual fund probe.
“It is believed that these inquiries are similar to those made to many financial service companies as part of an industry-wide investigation by various regulatory agencies into practices, policies and procedures relating to trading in mutual fund shares,” the two companies said in the filing.
“Each of John Hancock and Manulife is conducting internal investigations into these matters and has been and intends to continue to co-operate with the foregoing regulatory authorities, as applicable, in connection with their respective inquiries.”
Officials with Manulife and John Hancock could not be reached Tuesday night.
Manulife is the second Canadian company to become entangled in the unprecedented probe of the $7-trillion-US industry. Massachusetts Financial Services Co., the mutual fund unit of Sun Life Financial Inc. (TSX:SLF) , has acknowledged it is being investigated by the SEC and Spitzer, and is currently in settlement talks with both parties, according to sources.
Regulators have accused MFS of providing “false and misleading” disclosure to investors in prospectuses for 11 of the companies largest funds, and investigators at the SEC have informed the company they intend to pursue an enforcement action.
Market-timing involves making frequent short-term trades in order to take advantage of minor price discrepancies in a mutual fund’s price.
Although not illegal, it is typically outlawed or severely restricted by most major fund companies, since the excessive trades can raise administration costs and ultimately dilute returns to investors.
Late trading is illegal. Late traders buy and sell funds after the price has been established at 4 p.m. ET every afternoon.
Several blue-chip mutual fund companies are under the glare of regulatory scrutiny and a handful have already agreed to settlements. Last week, Alliance Capital Management Holdings LP agreed to a $600-million settlement with Spitzer’s office and the SEC.
More than half of that $350 million is what it will cost Alliance to shave its fees by 20 per cent for the next five years. The remaining $250 million is in the form of a financial penalty.
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