Robert Pozen, Massachusetts Financial Services' newest chairman, says the punishment doesn't fit the crime at his new firm.
"Mass Financial is a good company that got a bad deal," Pozen said in a telephone interview. "This is not a situation where individuals traded [in their own accounts]. This is not a situation where big clients were given preferential positions because they put money in hedge funds.
"Here, they explicitly picked out the 10 biggest U.S. stock funds and bond funds and allowed them to be market timed because they thought it would have no impact on the shareholders," Pozen continued.
"In fact, they have a professor from MIT who did a study who said that there wasn't any effect. If you look at the SEC settlement, it said most of the harm was done through illegal late trading that Mass Financial didn't know anything about."
Earlier this month, MFS reached a $351 million settlement with the SEC, New York Attorney General Eliot Spitzer and New Hampshire regulators. The deal included a reduction in fees. MFS had allowed timing in its funds, despite the fact that the prospectuses of those funds stated it was prohibited.
Pozen, 57, has his plate full as he inherits a fund shop in dire need of direction. He was named non-executive chairman last week, a role that makes sense for him since he does not want to operate a company on a daily basis, he said, noting that MFS' recently appointed CEO and CIO Robert Manning is going to do that. "This gives me the role of chairman, which is consistent with what I want to do at the moment," he said.
Pozen was brought in to head up MFS and replace Jeffrey Shames, who is retiring to pursue "other interests" and to spend more time with his family. Although Shames has had a "very difficult personal situation," Pozen said, he was committed to seeing the firm through its settlement with regulators. With Shames' departure, MFS has lost three of its top executives in the span of a week, as CEO John Ballen and president and equity chief Kevin Parke, were tossed out as per the SEC settlement.
With that deal completed, the firm's top two priorities are calming investor nerves and improving investment performance, Pozen said, echoing similar goals to those of Putnam's new CEO Charles "Ed" Haldeman, Jr. "One of our main goals is maintaining investor confidence by clearing up all the SEC stuff and putting in good compliance and risk controls," Pozen said.
However, despite the regulatory troubles, Pozen believes that there are some bright spots. "I was very happy to see that in January the firm had net sales of $800 million, so that shows something about the firm's rep."
And Pozen does come to MFS with an impressive resume in hand. Pozen leapt from managing director and general counsel at Fidelity Investments to heading up the firm's mutual funds unit, helping revive a deteriorating group, due to performance, in the mid-1990s.
"He guided Fidelity through a difficult, make -or-break time for the firm," said Don Phillips, managing director of Morningstar. "When he took over, there were a lot of raised eyebrows. People were asking why would Fidelity put its lead counsel in charge of that position?"
The move paid off as Pozen is often credited with reviving performance and nearly doubling the firm's fund assets under management. "The guy is the best in the business," Phillips said, noting the move was "brilliant" and that "Pozen is just one of the real standup guys in the industry. It's hard to imagine a better fit for MFS -- he has all the experience and all the connections on Capitol Hill." Pozen also has local connections as he recently served as the Secretary of Economic Affairs for Massachusetts Governor Mitt Romney.
Pozen brings a unique perspective to the firm, as he served as general counsel at the SEC from 1978-80. He is the one-time president of Fidelity Management & Research Co. Additionally, Pozen has taught a course at Harvard Law School on the mutual fund business and is currently teaching another on "Critical Decisions For Corporate Boards."
MFS declined to comment on Shames' or Pozen's salary or compensation, noting that since MFS is not a public company, it is not required to do so. However, there are some obvious incentives for Pozen to join the MFS ranks.
"He's going into a shop with real historical importance to the fund industry," Phillips said. In 1924, before the Great Depression, "MFS had the first fund. At MFS he has the possibility of putting the firm back on its feet and to right one of the real flag-bearers of the industry."
Kim Raynor, an associate at executive recruiting firm Russell Reynolds, said that with Pozen at the helm, MFS is sure to reenergize. The move will also likely give the organization and its employees a sense of empowerment. "Everybody in the industry needs a white knight in some way, shape or form," Raynor said.
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