BOSTON -- MFS Investment Management will pay $50 million to settle federal civil fraud charges alleging it failed to properly disclose incentives it gave to brokerage firms that favored its products, the mutual fund company announced Wednesday.
The Securities and Exchange Commission claimed that MFS failed to properly disclose payments made to brokers for steering clients toward certain funds - a long-standing practice that critics say creates conflicts of interest and drives up costs to investors.
MFS neither admitted nor denied wrongdoing under the settlement.
"Our settlement with the SEC reflects our eagerness to put this matter behind us, and to focus on the meaningful pro-investor reforms we have put in place to strengthen fund governance, tighten our business practices and achieve the highest standards of transparent disclosure in the industry," said Robert Pozen, non-executive chairman of MFS Investment Management.
The settlement is the second major fraud action the Boston-based mutual fund company has reached with regulators this year.
In February, MFS, a subsidiary of Toronto-based Sun Life Financial Inc., agreed to pay $350 million to the SEC and New York regulators to settle allegations it tolerated improper market-timing trades.
Market timing is the use of quick, in-and-out trades that skim profits from longer-term shareholders. The practice is not illegal but most funds have policies against it.
In February, the SEC banned fund companies form making special payments to brokerage firms as part of a major rule-writing effort meant to rebuild confidence in the fund industry among the 95 million Americans - half of all households - who entrust some $7 trillion to it.
At that time, Stephen Cutler, the SEC's top enforcement official, said the agency is investigating cases in which brokerage firms may have failed to fully disclose that they pushed clients to buy certain mutual funds in exchange for payments from the fund companies.
MFS is the nation's No. 11 fund company, with about $140 billion under management. It operates what some consider the oldest mutual fund: the Massachusetts Investor Trust, introduced in 1924.
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