“Massachusetts Financial Services Co. mutual-fund shareholders suffered about $100 million in losses because of fast-moving investors who engaged in improper “late trades,” an internal company inquiry found, according to people familiar with the matter,” writes John Hechinger in today’s Wall Street Journal.

“Massachusetts Financial Services, the nation’s 11th largest mutual fund firm, determined that investors made the trades through more than 10 different broker dealers, including Security Brokerage Inc., and the clearing arms of Bank of America Corp. and Bear Stearns Cos., these people said.”

“MFS officials maintain they didn’t know about late trading and were, in fact, its victims, according to people familiar with the matter. The Boston company, with about $140 billion under management, expects to take legal action against those who engaged in late trading of its funds, these people say.”

“Spokesmen for MFS and Bear Stearns declined to comment. A lawyer for Security Brokerage, based in Las Vegas, couldn’t be reached. A Bank of America spokesman said the company was cooperating with regulators but declined to comment on specifics. ” ‘Late trading is illegal,’ he said. ‘As a company, we do not countenance it.’ “

“Late trading is the practice of placing orders to buy or sell fund shares after the market’s 4 p.m. EST close. That enables traders to profit by exploiting late-moving market information that isn’t reflected in the mutual fund’s share price. New York Attorney General Eliot Spitzer has compared late trading to betting on a horse race after it is over. The practice ranks among the most serious transgressions of the four-month old mutual-fund scandal that has shaken investor confidence in the $7 trillion industry.”

“The assessment from MFS, an 80-year-old firm that claims to have invented the mutual fund, gives some of the clearest evidence to date of the damage late trading has done to rank-and-file investors. MFS’s $100 million figure is also roughly equal to the profits the company believes late traders made in its funds, according to a person familiar with the matter.”

“MFS’s internal inquiry about late trading of its own funds comes as the company, a unit of Sun Life Financial Inc., is in the late stages of settlement talks over expected civil-fraud charges from the Securities and Exchange Commission, Mr. Spitzer’s office and New Hampshire securities regulators, according to people familiar with the matter. An SEC spokesman declined comment. A spokesman for the New Hampshire Bureau of Securities Regulation said he can’t speak about specifics but said the agency had met with MFS and “plans on taking some action.” In November, New Hampshire joined in an investigation launched by Massachusetts Secretary of the Commonwealth William Galvin.”

“Those enforcement actions against MFS relate to another form of suspect trading, called market timing, in which short-term investors skim profits from long-term holders by trading in and out of funds. Mr. Spitzer is also seeking a reduction in money-management fees that MFS charges customers and other regulators are looking for hefty fines.”