Certain investment advisers and broker-dealers owned by Manulife Financial Corporation (Manulife Financial) and John Hancock Financial Services, Inc., (John Hancock), which merged into one complex in 2004, settled charges with the SEC that they were violating the federal securities laws from at least 2001 until as late as 2004 when the 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 offered by related Manulife Financial and John Hancock entities.
According to the Commission's order, John Hancock Investment Management Services, LLC (John Hancock Management) (known during the relevant period as Manufacturers Securities Services, LLC) and John Hancock Advisers, LLC (John Hancock Advisers), advisers respectively to the Manulife Financial variable annuity trust portfolios and the John Hancock retail mutual funds, directed brokerage commissions from transactions in the 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. These marketing arrangements are known as "revenue sharing" arrangements. 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. However, the investment adviser respondents did not disclose to the trust or retail mutual fund boards the use of these assets to pay their affiliates' revenue sharing obligations, in breach of their fiduciary duty to the trust and retail mutual funds. John Hancock Distributors LLC (John Hancock Distributors) (known during the relevant period as Manulife Financial Services, LLC) and John Hancock Funds, LLC (John Hancock Funds), the broker-dealer affiliates that distributed the Manulife Financial variable annuity products and John Hancock's retail mutual funds, negotiated and were obligated under the marketing arrangements. They knew or should have known that John Hancock Management and John Hancock Advisers failed to disclose to the trust and retail mutual fund boards the use of brokerage commissions to pay for these revenue sharing obligations.
Please click http://www.sec.gov/litigation/admin/2007/34-55946.pdf to access the administrative action.