Hartford pays $20M to end annuity fraud probe
Insurer paid secret kickbacks to brokers, Spitzer, Connecticut Attorney General claim
By Alistair Barr
May 10, 2006
SAN FRANCISCO (MarketWatch) -- Hartford Financial Services said on Wednesday that it agreed to pay $20 million to end fraud investigations by New York Attorney General Eliot Spitzer and Connecticut's Attorney General into the insurer's sales of group annuities.
Hartford said it will pay $16.1 million to affected customers, which included General Electric Consumer Finance, Tenet Healthcare and PricewaterhouseCoopers, the world's largest accounting firm. The remaining $3.9 million are fines that will be paid to New York and Connecticut, the company added.
The cost of the settlement has already been accounted for with reserves previously established. As part of the pact, Hartford said it accepted a three-year ban on the sales practices in question.
Hartford's scheme involved secretly paying brokers in exchange for them persuading pension plans to buy Hartford annuities. The brokers also provided the insurer with inside information on competitive bidding, the Connecticut Attorney General's office claimed in a statement on Wednesday.
The illegal scheme helped Hartford generate roughly $800 million worth of business, reaping millions more in investment profits. Brokers received close to $4 million in concealed payments that were unknowingly subsidized by their pension plan clients, Connecticut added.
"The Hartford was at the hub of a series of secret conspiracies that enriched both the brokers and The Hartford as the expense of their customers," Connecticut Attorney General Richard Blumenthal, said. "Our evidence shows a shocking systematic scheme that betrayed their moral and legal duties."
The scheme, which ran from 1998 through 2004, included brokers Dietrich & Associates, Inc., Brentwood Asset Advisors, USI Consulting Group, and BCG Terminal Funding, Spitzer and Blumenthal's offices said.
Instead of acting on their customers' behalf, the brokers became, in effect, paid representatives of Hartford, Spitzer's office explained.
Hartford tried to conceal the payments, which helped them sell over-priced products, Spitzer's office claimed.
Spitzer's office quoted a Hartford employee explaining in an email that the payments should be kept quiet: "If there is anyone we feel could leak, then we shouldn't have this setup with them. I think that is the whole point, if they talk, the deal is terminated. We just have to reiterate that over and over to the selected brokers..."
Spitzer also cited an email by a Hartford executive admitting that "Our prices are not competitive in open bidding situations."
Hartford shares climbed 26 cents to $92.16 during afternoon trading on Wednesday.
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