Another fund firm stirs SEC suspicion

Massachusetts Financial said to make `false, misleading' statements

December 09, 2003|By BLOOMBERG NEWS

BOSTON - Massachusetts Financial Services Co., the U.S. mutual fund unit of Canada's Sun Life Financial Inc., was notified by the Securities and Exchange Commission yesterday that it might face enforcement action for misleading investors about its policy on market timing.

The SEC is alleging that MFS fund prospectuses made "false and misleading" statements about market timing, said Sun Life spokesman Nicholas Thomas in Toronto. Market timing involves buying a fund's shares and then quickly selling them. That can raise a fund's transaction costs and dilute gains for long-term holders.

MFS, the oldest U.S. mutual fund company, is at least the 10th to face regulators' allegations that it might have violated federal securities laws in the widening investigation of the $7.1 trillion mutual fund industry.

The SEC and New York state Attorney General Eliot Spitzer accused Invesco Funds Group in Denver last week of committing fraud by allowing some investors to make frequent trades in funds.

"MFS is a granddaddy of the mutual fund business," said James Angel, an associate finance professor at Georgetown University in Washington. "It sends a signal that the SEC is serious about cleaning up abuses in the industry."

Regulators have said that fund companies including Invesco and Putnam Investments allowed favored investors to make rapid short-term trades that contradicted fund prospectuses. Long-term investors lost as much as $5 billion a year to market timers, according to studies cited by Spitzer.

No employee at MFS, which oversees about $175 billion for clients, engaged in "inappropriate" trading, said Thomas, the Sun Life spokesman. MFS, led by John W. Ballen, is cooperating with regulators.

Shares of Sun Life, which owns 93 percent of MFS and is Canada's biggest insurer by assets, closed down 35 cents at $32.70 ($25.19 U.S.) on the Toronto Stock Exchange yesterday.

MFS accounted for 8.3 percent of Sun Life's third-quarter revenue.

"I don't think this is going to have a lasting impact on Sun Life shares," said Stephen Jarislowsky, chairman of Jarislowsky Fraser Ltd., which manages $38 billion (Canadian) in assets from Montreal and holds 8.3 million Sun Life shares, Bloomberg data show. "It's a small part of their business."

SEC spokesman John Heine declined to comment. The Ontario Securities Commission has given all Canadian mutual funds until Dec. 15 to report on their trading practices and possible market timing activities. Eric Pelletier, a spokesman for the Canadian regulator, declined to comment on Sun Life.

Also yesterday, four pension funds, including the California Public Employees Retirement System, the biggest in the United States, said they would nominate their slate of directors for Marsh & McLennan Cos., Putnam's parent, because of the improper trading allegations.

And Bank One Corp., which had an agreement with a hedge fund allowing frequent fund trades according to Spitzer, said yesterday that it had dismissed two executives in its mutual fund unit amid an internal investigation.

Bank One, whose fund family has about $101 billion in assets, said Nov. 26 that it expected regulators to take an "enforcement action" stemming from their investigation of the bank's fund trading practices.

MFS, founded in 1924, agreed in September to pay $900,000 to settle an SEC complaint over trading in U.S. Treasury bonds with inside information. MFS didn't admit or deny wrongdoing.

In a prospectus filed with the commission Nov. 3, MFS said its funds don't permit market timing or any "excessive trading practices that may disrupt portfolio management strategies and harm fund performance." MFS added in the filing that damaging trades would be rejected or canceled.

Trading known as market timing seeks to profit from the fact that mutual funds are valued once a day at 4 p.m. in New York, while the securities they own trade more frequently around the world. Many funds say in their prospectuses that they limit or discourage the practice to protect investors.

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