Sun Life Unit May Face SEC Enforcement Action
The mutual fund scandal may soon taint the oldest U.S. fund company of all.
Massachusetts Financial Services, the U.S. mutual fund unit of Canada’s Sun Life Financial Inc., has been notified by the Securities and Exchange Commission that it may face enforcement action for misleading investors about the firm’s tolerance for market timing, Sun Life said Monday.
The SEC is alleging that fund prospectuses of Boston-based MFS made “false and misleading” statements regarding its policy on market timing, said Sun Life spokesman Nicholas Thomas in Toronto.
The industry scandal has focused on fast-paced trading that some fund firms allegedly permitted for favored clients while officially decrying the practice. Such trading can raise portfolio costs and dilute gains for long-term investors.
Timing isn’t illegal, but a fund company can be charged with fraud if it allowed the practice for some clients while maintaining in disclosure documents that it sought to prevent investors from making timing trades.
In a recent prospectus for its funds, MFS said it doesn’t permit market timing or any “excessive trading practices that may disrupt portfolio management strategies and harm fund performance.”
MFS is at least the 10th firm to face regulators’ allegations that it may have violated federal securities laws in allowing timing activity. Founded in 1924, it is the oldest U.S. mutual fund company.
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.”
But Sun Life said regulators weren’t alleging that MFS employees permitted late trading of fund shares or traded illegally for their own accounts. Those abuses have come to light in investigations of other fund firms.
“The SEC notice contains no allegations that any MFS employee was knowingly involved in either late trading or inappropriate personal trading in MFS funds,” Sun Life said.
MFS, which oversees about $175 billion for clients, is the 11th-largest U.S. fund company.
The firm said it is cooperating with regulators. SEC spokesman John Heine declined to comment.
Separately Monday, Bank One Corp., one of the first firms implicated in the fund scandal, said it 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.
Bank One was one of four fund companies named when New York Atty. Gen. Eliot Spitzer filed his first court complaint in the fund scandal Sept. 3.
Another company implicated in the scandal, Janus Capital Group Inc., said Monday that its total assets under management as of Nov. 30 fell to $147.5 billion from $149.8 billion a month earlier. That indicates investors are continuing to withdraw money from Janus.
