Attorney General Cuomo Announces $115 Million Settlement With Hartford
Agreement Settles Investigation Into Market Timing And Fictitious Insurance Quotes
Hartford Apologizes And Promises To Reform
New York State Attorney General Office
July 23, 2007
New York, NY (July 23, 2007) - Attorney General Andrew M. Cuomo today announced that Hartford Financial Services, Inc., one of the nation's largest financial and insurance services companies, has agreed to pay $115 million to settle an investigation into illegal and fraudulent practices. Hartford also issued an apology and agreed to enact significant business reforms.
"Consumers planning for retirement and small business owners trusted Hartford as the steward of their insurance policies and long-term savings, only to have their trust violated", said Attorney General Andrew Cuomo. “Today Hartford has finally ended this troubling history and pledged to restore consumer confidence as well as transparency and competition in the marketplace. This settlement underscores the enduring commitment of my office to aggressively pursue corporate wrongdoing, wherever we find it.”
The settlement is a result of the Attorney General’s investigation into two of Hartford’s signature businesses - variable annuities for retirement planning and small and middle market property and casualty insurance.
The Attorney General’s investigation uncovered that Hartford failed to police opportunistic hedge funds that were market timing or making rapid trades in and out of its variable annuities. This abusive trading diminished the value of the investments of Hartford’s non-timing customers, many of whom were saving for retirement. The investigation also found that Hartford invested in a hedge fund - Millennium USA, L.P - that was market timing Hartford’s variable annuities. Hartford reaped nearly $16 million from its investment in Millennium and failed to disclose the hedge fund’s market timing activities to customers.
In the property and casualty insurance business, the Attorney General’s investigation found that Hartford provided fictitious quotes to insurance brokers such as Marsh and McLennan Companies, Inc. Typically, upon request, Hartford would give the broker the intentionally losing quote. The broker then used the fake quote to make other insurers’ quote appear more attractive to customers. As a result, small and middle sized business owners were fooled into believing they were getting the best insurance at the best price when in fact they were not.
Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan joined the property and casualty portion of today’s settlement. The Attorney General also acknowledged the cooperation of the Boston Regional Office of the United States Securities and Exchange Commission in the market timing investigation. The Attorney General noted that Hartford cooperated with the investigation and the company has implemented new compliance practices in light of the facts uncovered by his office.
Of the $115 million, Hartford will pay $84 million in restitution to investors in Hartford variable annuities who were financially harmed by market timing, $5 million in restitution to businesses in areas where Hartford provided fictitious quotes to Marsh & McLennan Companies, Inc., a $20 million in penalty to New York, and $3 million each to the states of Connecticut and Illinois.
Senior Enforcement Counsel Harriet Rosen conducted the market timing investigation, and Assistant Attorneys General Mel Goldberg and Armen Morian conducted the insurance investigation – all under the supervision of Investor Protection Deputy Bureau Chief Maria Filipakis and Bureau Chief Matthew Gaul.
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