State and federal regulators announced Thursday a $350 million settlement with Massachusetts Financial Services to resolve charges that it knowingly allowed preferred customers to market time ten of its mutual funds.
The Securities and Exchange Commission, crusading New York Attorney General Eliot Spitzer and New Hampshires Bureau of Securities Regulation made a joint agreement with MFS that requires the company to pay $175 million in restitution to harmed investors, slash fees by $125 million over the next five years and pay a $50 million fine. Additionally, the nations 10 th largest mutual fund company agreed to hire a top-level executive to ensure its fees are reasonable and are negotiated at arms length.
"This settlement levels the playing field for all investors in this mutual fund company," Spitzer said in a prepared statement. "From now on, market timers will no longer be permitted to profit at the expense of long term investors."
As part of its settlement, the SEC imposed enforcement actions against CEO John Ballen, and Kevin Parke, the companys president and chief equity officer. The deal effectively bans each of them from serving as an officer of any investment adviser and from serving as an employee, officer, or trustee of any registered investment company for three years.
The Commission also suspended Ballen and Parke from being involved with any registered investment company for nine months and six months, respectively.
The not-so-dynamic duo will pay a penalty of $250,000 and return more than $50,000 in ill-gotten gains to harmed shareholders.
The investigation into improper trading practices at MFS revealed that $44 billion of its $94 billion in assets under management were open season for market timers. Timing activity accounted for 5% of these unrestricted funds, the attorney generals office said.
According to the SECs investigation, Ballen and Parke employed an undisclosed policy permitting market timing in its unrestricted funds during the same period they signed registration statements saying they prohibited the illicit practice.
In December, Spitzer struck a similar deal with Alliance Capital that forced the fund giant to reduce its fees by 20% over the next five years, representing a $350 million value. The case set an alarming precedent for the fund industry in that it meant that state regulators could effectively lower fund prices that were typically a product of competition in the marketplace.