Compliance June 27, 2007
John Hancock Settles on Failure to Disclose Revenue Sharing
The Securities and Exchange Commission (SEC) on Monday issued a settled order against certain investment advisers and broker-dealers owned by Manulife Financial Corporation and John Hancock Financial Services, Inc., relating to charges of failure to disclose revenue sharing agreements.
Reported by Rebecca Moore
According to a statement from the SEC, Manulife and John Hancock, which merged into one complex in 2004, violated federal securities laws from at least 2001 until as late as 2004 when investment advisers failed to disclose their use of brokerage commissions to pay for their affiliated distributors’ marketing expenses concerning the sale of mutual fund and variable annuity products. The Commission’s order censures each of the entities and requires each of them to cease-and-desist from committing or causing certain violations of federal securities laws and to undertake certain compliance reforms, the statement said.
As part of the settlement, the firms agreed to pay, in total, $19,287,880.95 in disgorgement, which will be distributed to the affected funds, and a $2 million penalty.
According to the SEC, John Hancock Investment Management Services, LLC (known during the relevant period as Manufacturers Securities Services, LLC) and John Hancock Advisers, LLC directed brokerage commissions from transactions in trust portfolios and retail mutual funds they advised to pay for marketing expenses their affiliated distributors incurred under the distributors’ own marketing arrangements with broker-dealers. The commissions were trust portfolio and retail mutual fund assets, and were in addition to the distribution-related expenses that the variable series trust and mutual fund boards had authorized, but the investment advisers did not disclose to the trust or retail mutual fund boards the use of these assets to pay their affiliates’ revenue sharing obligations.
The firms that distributed the Manulife Financial variable annuity products and John Hancock’s retail mutual funds, negotiated and were obligated under the marketing arrangements, so they knew or should have known the advisers failed to disclose the revenue sharing obligations, the SEC said.
The firms consented to the settlement but neither admitted nor denied any wrongdoing.