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 that it may
face enforcement action for misleading investors about the firm’s
policy on market timing.
The SEC is alleging that fund prospectuses of Boston-based
MFS made “false and misleading” statements about trading known
as market timing, said Sun Life spokesman Nicholas Thomas in
Toronto. Market timing involves buying a fund’s shares and then
quickly selling them. This can raise a fund’s transaction costs
and dilute gains for long-term holders.
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MFS, the oldest U.S. mutual fund company, is at least the
10th firm to face regulators’ allegations that it may have
violated federal securities laws in the widening probe of the $7.1
trillion mutual fund industry. The SEC and New York State Attorney
General Eliot Spitzer last week accused Invesco Funds Group in
Denver of committing fraud by allowing some investors to make
frequent trades in funds.
“MFS is a grand-daddy 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, Thomas said. The
company, led by John Ballen, is cooperating with regulators.
Sun Life owns 93 percent of MFS and ranks as
Canada’s biggest insurer by assets.
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 C$38 billion 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.
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 on 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 will 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. New York time
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.
Bloomberg News
