MFS Investment Management, the US mutual fund unit of Canada’s Sun Life Financial Inc., is facing a second inquiry by the Securities and Exchange Commission over its links with Morgan Stanley and other brokers.
Boston-based MFS, which this month agreed to pay $351 million to settle complaints of improper fund trading, was one of 14 companies reported to have paid Morgan Stanley for preferred marketing of its funds, Sun Life said in an SEC filing. Other Sun Life units are cooperating with the SEC in a probe into arrangements between brokers and fund firms, it said.
“MFS has been under investigation by the SEC relating to its directed brokerage and revenue-sharing arrangements with various distributors of its products, including Morgan Stanley,” Sun Life said in the filing.
The SEC and other regulators have been investigating the $7.4 trillion mutual fund industry since Sept. 3, when New York Attorney General Eliot Spitzer said fund firms let Canary Capital Partners LLC buy shares at prices not available to most investors.
The scrapping of the directed brokerage and so-called soft dollar arrangements could hurt Sun Life’s earnings by reducing its ability to attract and keep assets in its funds, the filing said. Fund fees are calculated as a percentage of assets under management. Sun Life, which bought MFS in 1981, said the payments the fund firm made to the regulators “will largely mitigate any damages payable” under class-action lawsuits started against the company.
MFS, which oversees $140 billion of assets and accounted for 8.3 percent of Sun Life’s third-quarter revenue, stopped the practice of directed brokerage in November when Morgan Stanley agreed to pay $50 million to settle charges it promoted the funds of some companies in exchange for hidden payments, said Sun Life spokesman Nicholas Thomas.
David Oliveri, a spokesman for MFS, said the company hasn’t “gotten any word one way or another on what the status” of the SEC’s investigation is.
In November, Morgan Stanley said funds in its Partners Program included Aim Investments, Alliance Capital Management Holding LP, Capital Group Cos.’ American Funds, BlackRock Inc., Davis Select, Dreyfus Funds, Eaton Vance Corp., Evergreen, Fidelity Investments, Franklin Templeton, Morgan Stanley, Pacific Investment Management Co., Putnam Investments, Scudder, and Van Kampen, which also is owned by Morgan Stanley. Regulators at the time said money management companies in the program paid higher commissions to have their funds marketed. Morgan Stanley gave its brokers and branch managers increased compensation to recommend those funds, regulators said.
According to Morgan Stanley’s website yesterday, MFS and BlackRock no longer are on the list. Morgan Stanley spokeswoman Andrea Slattery couldn’t immediately be reached to comment.
All payments by Fidelity under the Morgan Stanley program came out of 12b-01 fees that were disclosed in the fund prospectuses and approved by fund boards of directors, a spokeswoman said. Chuck Freadhoff of American Funds and Chad Peterson, a spokesman at Evergreen, said the firms wouldn’t comment on legal or regulatory matters. David Bachert of Aim, John Meyers of Alliance, Lisa Gallegos of Franklin, and Mark Porterfield of PIMCO didn’t immediately return calls.
Putnam’s Sinead Martin and Brian Beades of BlackRock didn’t have immediate comment. Maureen Dempsey at Dreyfus and Scudder’s Missy DeAngelis had no comment. Officials at Davis couldn’t immediately be reached.
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