SEC Commissioner Criticizes MFS Deal

In an unusual move, one of the five Securities and Exchange Commissioners is publicly criticizing last week’s settlement with Massachusetts Financial Services over improper trading, arguing the SEC wasn’t tough enough on the mutual fund company’s two top executives.

The settlement, which called for MFS to pay $225 million in penalties, prohibited the company’s top two officials from serving as an officer or director in the fund industry for three years. Chief Executive John Ballen also was banned from any association with the industry, in any capacity, for nine months, while President Kevin Parke faced a similar ban for six months. Each also faced penalties exceeding $300,000.

But that wasn’t enough for Cynthia Glassman, who in a three-sentence message posted Friday on the SEC website said “the terms of the settlements with Messrs. Ballen and Parke were not strong enough.”

In a telephone interview, Glassman said she was satisfied with the penalties imposed on MFS but the commission should have enacted tougher punishments given the leadership positions of the two men.

Regulators have said Ballen and Parke “knowingly permitted” abusive trading practices, even as they signed promises to other customers not to tolerate them.

“I was just concerned about the sanctions on the individuals, in particular the ‘time out’ in light of our focus on corporate governance and tone at the top,” she said. “These guys were at the top.”

A spokesman for Boston-based MFS, a unit of Toronto-based Sun Life Financial, had no immediate comment. Under the settlement, MFS, Ballen and Parke neither admitted nor denied wrongdoing.

While SEC commissioners are commonly understood to thrash out differences in private, public dissents have become rare. Glassman’s comments won’t affect the settlement, but they come at a time when the SEC is facing criticism that it failed to police funds as aggressively as state regulators have.

The SEC did not participate in a separate agreement with MFS worked out by New York Atty. Gen. Eliot Spitzer that requires the firm to lower fees $125 million over the next five years. The commission had previously indicated it thought forced fee reductions were inappropriate in cases of improper fund trading.

MFS announced Monday that it hired Robert Pozen, the former head of Fidelity Investments’ mutual funds unit, as chairman. Pozen, 57, is replacing Jeffrey Shames effective immediately, spokesman John Reilly said. Shames, 48, retired after six years as chairman.

“My job is to restore the public image of MFS to its rightful place,” Pozen said in a telephone interview.