Administration May 2, 2004

MFS Scandal Settlement Finalized

February 5, 2004 (PLANSPONSOR.com) -The long-rumored $225 million settlement between Massachusetts Financial Services Company (MFS) and state and federal regulators over improper trading in shares of MFS mutual funds was finally hammered out on Thursday.
Reported by

Sun Life Financial Inc. confirmed in a news release that the MFS pact not only includes a settlement with the US Securities and Exchange Commission (SEC), but agreements with New York State Attorney General Eliot Spitzer and the State of New Hampshire Bureau of Securities.

The SEC has been pursuing allegations that its fund prospectuses contained false and misleading information about policies on short-term trading – which, along with late trading, is the focus on the continuing federal/state fund probe (See  MFS Misses Market Timing in 11 Funds ). MFS oversees about $140 billion, including $41 billion for institutional clients.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Spitzer said in a Thursday news release that, despite the representations in its prospectuses, “In fact, from at least late 1999 to 2003, some MFS funds were open to market timers and were being heavily timed.” Further, Spitzer said that MFS held $44 billion of its assets under management in an “unrestricted” status which MFS allowed to be secretly timed. The 10 MFS funds open to market timing were Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund, MFS Emerging Growth Fund, MFS Research Fund, MFS Total Return Fund, MFS Money Market Fund, MFS Cash Reserve Fund, MFS Government Securities Fund, MFS Government Mortgage Fund and MFS Bond Fund.

The SEC settlement announcement is at http://www.sec.gov/news/press/2004-14.htm .

As part of the deal, MFS has agreed to pay the $225 million to compensate fund shareholders including a $50 million penalty. MFS agreed with Spitzer to reduce fees on the funds it advises by approximately $25 million annually over the next five years, and with the State of New Hampshire Bureau of Securities Regulation to pay a $1 million administrative fine. MFS Chief Executive Officer John Ballen and President Kevin Parke have agreed with the SEC to suspensions from the securities industry for nine and six months, respectively, and have each agreed to pay approximately $315,000, including a $250,000 penalty.

According to the Sun Life announcement, Robert Manning has been named Chief Executive Officer, President and Chief Investment Officer of MFS. Manning, who joined MFS in 1984, is a member of the Management Committee and the Board of Directors of MFS and has served as Chief Fixed Income Officer since 2001. Ballen, a Harvard graduate, joined MFS as an analyst and has been credited in reinvigorating the firm by making bigger bets on technology stocks during the 1990s, news reports said.

The suspension of Ballen and Parke sends the strongest message yet by regulators that they intend to clean up the industry after finding dozens of firms engaged in market timing, according to news reports.

Sun Life said investigations by the SEC and MFS uncovered evidence that third parties placed illegal late trades in MFS funds, without MFS’ knowledge and in violation of MFS’ contracts with broker/dealers who place such trades. Neither the SEC nor the state agencies involved alleged that there is any evidence that any MFS employee engaged in any criminal activity, or was knowingly involved in late trading, Sun Life said.

MFS is the latest in a string of companies to settle with regulators. Last year deals were reached with Boston-based Putnam Investments and New York-based Alliance Capital.

Compliance May 1, 2004

Appeals Court Upholds Infertility Treatment Exclusions

January 17, 2003 (PLANSPONSOR.com) - An employer whose health plan does not cover infertility treatments isn't guilty of illegal discrimination, a federal appeals court decided.
Reported by

The US 2nd Circuit Court of Appeals said that even though the infertility treatments in the specific case were only performed on women, the “exclusion of surgical impregnation procedures disadvantages infertile male and female employees equally,” the National Law Journal reported. So the employer d id not run afoul of the federal Pregnancy Discrimination Act (PDA) by declining coverage for artificial insemination and other treatments, the appeals judges said.

The appeals court upheld a lower court’s decision in favor of the employer.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Sex Specifics

 

Chief Circuit Judge John Walker said the proper question on review “is whether sex-specific conditions exist, and if so, whether exclusion of benefits for those conditions results in a plan that provides inferior coverage to one sex.”

“Because reproductive capacity is common to both men and women, we do not read the PDA as introducing a completely new classification of prohibited discrimination based solely on reproductive capacity,” Walker wrote. “Rather, the PDA requires that pregnancy, and related conditions, be properly recognized as sex-based characteristics of women.”


“Artificial” Distinctions

Plaintiff Rochelle Saks claimed that the refusal of her self-insured health benefits plan to cover infertility treatments was a violation of her federally protected civil rights. While employees enrolled in her health plan were allowed benefits for some infertility products and procedures, the plan specifically barred coverage for artificial insemination and other surgical impregnation procedures, such as in-vitro fertilization.

After Saks filed a federal suit in the US District Court for the Southern District of New York, US District Judge Colleen McMahon rejected her claims, finding that the exclusions of surgical impregnation procedures affected males and females equally. McMahon also said the PDA was not violated because the plan provides equal coverage for men and women.

The case is Saks v. Franklin Covey Co . , 00-9598.

«