Attorney General Reaches $20M Settlement With The Hartford
Business First of Buffalo
May 10, 2006
The Hartford Financial Services Group will pay $20 million for its part in a scheme that involved marketing retirement products, the New York state Attorney General's office said Wednesday.
A settlement was also reached between the company and the Connecticut AG's office.
"This investigation shows how payoffs and deception influenced major deals for retirement products," Attorney General Eliot Spitzer said. "This was wrong."
New York officials said that last year they began receiving tips indicating that insurance companies might be making secret payments to insurance brokers to recommend group annuities to pension plans. Authorities confirmed that such payments were being made and that the payments were being concealed from pension plan managers, who believed that the brokers were acting on their behalf. But instead of acting as fiduciaries for the pension plans, the brokers had become, in effect, paid sales representatives for Hartford, said a statement from Spitzer's office.
The scheme involved sham "expense reimbursement agreements," or ERAs, between Hartford and each of four brokers who held themselves out as trusted advisors to retirement plans. Those firms were identified as Dietrich & Associates; Brentwood Asset Advisors; BCG Terminal Funding; and USI Consulting Group.
The AG's office noted the ERAs actually had nothing to do with expense reimbursements, but were simply volume-based bonuses designed to reward brokers for pushing Hartford products.
With the help of those brokers, The Hartford was able to sell more than $800 million worth of group annuity pension plans from 1998 to 2004. As a result, several companies and institutions faced increased costs as a result of this scheme. Among the companies identified by state investigators are Montgomery Ward Co.; Bennetton Sportssystem USA., Inc; PriceWaterhouseCoopers; and Mt. Sinai Medical Center of Florida.
The Hartford issued an apology for its acknowledged misconduct stating, "It was wrong to withhold from our pension plan customers the full amount of compensation paid to brokers in connection with the placements of these annuities."
The settlement calls for the company to improve disclosures and stop making the payments for a three-year period and to support legislation to curtail such payments.
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