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
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.
Products June 27, 2007

Claymore Launches Sudan-Free Socially Responsible ETF

Claymore Securities has announced the launch of a socially responsible exchange-traded fund (ETF) tied to the issue of Sudan divestment.
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The Claymore/KLD Sudan Free Large-Cap Core ETF tracks the KLD Large Cap Sudan Free Social Index.
“The new KLD Sudan Free Large Cap Social Index is the result of institutional and retail investors’ desire for Sudan-free investment products,” said Thomas Kuh, Managing Director of KLD Research & Analytics, Inc., in a news release. Christian Magoon, Senior Managing Director, Claymore Securities, said the index contains a Sudan-free mandate in the index methodology.
Claymore/KLD Sudan Free Large-Cap Core ETF seeks investment results that correspond generally to the performance, before the fund’s fees and expenses, of the KLD Large Cap Sudan Free Social Index. According to the announcement, the index is comprised of a subset of stocks in the Russell 1000 Index with market capitalizations generally greater than $1 billion that meet KLD Research & Analytics’ screens for environmental, social, and governance factors and involvement in Sudan, including:
  • Owns or controls property or assets in Sudan
  • Has employees or facilities in Sudan
  • Provides goods or services to companies domiciled in Sudan
  • Obtains goods or services from Sudan
  • Has distribution agreements with companies domiciled in Sudan
  • Issues credits or loans to companies domiciled in Sudan
  • Purchases goods or commercial paper issued by the Government of Sudan.
The index will be rebalanced annually in June in conjunction with the reconstitution schedule of the Russell 1000 Index.

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