ALBANY, N.Y. – The Hartford Financial Services Group Inc. (HIG) has agreed to pay $20 million to settle an investigation by the states of New York and Connecticut into claims of fraudulent practices in retirement products, it was announced Wednesday.
New York Attorney General Eliot Spitzer and Connecticut Attorney General Richard Blumenthal investigated claims into the marketing of retirement plans after tips that the company was making "secret payments" to insurance brokers to recommend Hartford group annuities to pension plans.
Spitzer said investigators confirmed the payments were made but were concealed from pension plan managers who believed the brokers were analyzing several companies.
The brokers who were supposed to be independent had acted as salesmen for Hartford, according to the Spitzer-Blumenthal investigation.
Spitzer said the practice helped Hartford realize more than $800 million in sales from 1998 to 2004, forcing higher policy costs for customers including Montgomery Ward Co., Price WaterhouseCoopers and Mt. Sinai Medical Center of Florida.
"This investigation shows how payoffs and deception influenced major deals for retirement products," Spitzer said. "This was wrong. But the company at the center of the scandal has acknowledged misconduct, provided compensation for those who were harmed, and implemented reforms that will help protect retirees in the future."
The Hartford said in a statement that it would make the $20 million payment and accept a three-year prohibition on the use of contingent compensation in the annuity business at issue as part of the settlement.
It said $16.1 million would go to plan sponsors that purchased the annuities between Jan. 1, 1998 and Dec. 31, 2004. The balance of $3.9 million will be divided equally between the states of New York and Connecticut.
"We have apologized to plan sponsors for not having provided full disclosure of the compensation paid," The Hartford's Chairman and Chief Executive Officer Ramani Ayer said in a statement. "Resolving this matter was important for our company. We have cooperated fully with regulators during their investigations and will continue to do so."
Spitzer accused the company of a scheme involving fake expense reimbursement agreements — known as ERAs — that amounted to hundreds of thousands of dollars, between Hartford and each of four brokers: Dietrich & Associates; Brentwood Asset Advisors; BCG Terminal Funding; and USI Consulting Group. Instead of expense reimbursements, Spitzer claimed they were volume-based bonuses to brokers for recommending Hartford policies.
An e-mail from a Hartford employee said the ERAs were "to stimulate business we could not otherwise get."
Spitzer spokesman Marc Violette wouldn't comment on whether any action could be brought against the brokers.
Hartford said the practice was necessary because its prices were too high to compete, according to an internal company e-mail: "Our prices are not competitive in open bidding situations."
Hartford Financial shares fell 8 cents to $91.82 in morning trading on the New York Stock Exchange.