2 mutual fund suits are settled

Investors alleged improper timing of trades

May 12, 2007|By Bloomberg News

NEW YORK -- MFS Investment Management, creator of the first U.S. mutual fund, and Bank One Corp. have agreed to settle lawsuits alleging they let favored investors reap unfair profits by improperly timing trades.

MFS, the mutual fund unit of Canada's Sun Life Financial Inc., and Bank One, now owned by JPMorgan Chase & Co., said in court papers they agreed to resolve claims by investors and pension funds over the practice.

Terms were not disclosed in letters to U.S. District Judge J. Frederick Motz in Baltimore.

"The proposed settlement will resolve all of the pending claims" against MFS, said William C. Frederick, a lawyer for the City of Chicago Deferred Compensation Plan, in court filings. The Chicago plan serves as lead plaintiff in a class action suit against MFS.

The settlements are among the first to emerge from the thousands of lawsuits consolidated under Motz.

They were filed after former New York Attorney General Eliot Spitzer disclosed a 2003 probe of questionable practices in the $10.4 trillion mutual-fund industry. Spitzer is now New York's governor.

JP Morgan spokesman Joe Evangelisti and MFS spokesman John Riley declined to comment on the settlements.

More than two dozen mutual fund and brokerage companies, along with at least 30 former executives, have paid more than $5 billion to the Securities and Exchange Commission and state agencies to resolve regulatory complaints about their trading practices. The money is slated to be returned to investors.

MFS, which has its headquarters in Boston, paid $351 million in 2004 to settle regulators' claims that it let favored clients engage in rapid short-term trades known as market timing. The practice allowed them to profit at the expense of long-term investors, according to regulators.

Without admitting or denying wrongdoing, MFS agreed in 2004 to pay $225 million to settle the SEC allegations, cut fees by $125 million over five years to settle a complaint brought by Spitzer and contribute $1 million for investor education in an agreement with New Hampshire.

The company suspended John W. Ballen, its chief executive officer, and Kevin R. Parke, who oversaw its investment unit. Both men later left the company.

Also in 2004, Bank One officials agreed to pay $90 million to resolve claims it allowed improper trading by hedge fund Canary Capital Partners LLC through its funds. Canary agreed in 2003 to pay $40 million to settle civil claims brought by Spitzer's office. The Bank One accord came as the Chicago bank readied itself to merge with JPMorgan Chase in July 2004.

There's no timetable for releasing documents outlining the terms of the MFS and Bank One settlements, said Clifford S. Goodstein, a New York lawyer representing Bank One fund customers.

Lawyers are working to coordinate the settlements with distributions of funds from regulatory accords, Daniel J. Kramer, a lawyer representing Bank One, told Motz in a letter Wednesday.

Other funds that have settled suits in the consolidated case include Bank of America's Columbia Management Group and its subsidiaries and Banc of America Securities LLC, Goodstein said.

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