Schiff’s Expose of John Hancock Financial Services Reportedly Uncovers Deceptive Practices

July 30, 2003

In the process of securing policyholders’ confidence and votes for its January 2000 demutualization, John Hancock, through a complex series of actions and omissions, deceived its policyholders into acting against their financial interests, writes Schiff’s Insurance Observer ( These actions and omissions are analyzed in the July 18, 2003 issue of Schiff’s Insurance Observer entitled “John Hancock’s CEO Should be Fired.”

According to Schiff’s, Hancock’s CEO David D’Alessandro and former-CEO Stephen Brown did not tell policyholders about a Morgan Stanley memo that valued Hancock at more than $26.66 to $33.33 per share—far higher than the $17 IPO price at which 75% of Hancock’s policyholders were cashed out. The cash-out cost policyholders $1.8 billion in lost value.

Actions taken before the demutualization by D’Alessandro and Brown reportedly depressed Hancock’s stock price, benefiting D’Alessandro (among other insiders), who, shortly after the IPO, bought 126,950 shares with money borrowed from Hancock. “Did Hancock’s officers and directors know all along that Hancock was worth much more than the IPO price?” asks Schiff’s. If they didn’t, why did D’Alessandro and others immediately borrow money from Hancock to buy stock for their own accounts, and why did Hancock subsequently spend more than $1 billion to repurchase shares at an average price of $35.80 per share—more than twice the IPO price?

According to Schiff’s, part of D’Alessandro’s compensation (he received $32.9 million in the three years following the demutualization, not counting options), appears to be a flagrant violation of Massachusetts’ law, which prohibits a mutual insurer’s officers and directors from being compensated for “aiding, promoting or assisting” in the mutual’s conversion to a stock company. Schiff’s reports that despite this permanent prohibition, Hancock’s Compensation Committee report stated that D’Alessandro was granted a large “incentive award” because Hancock “successfully converted to a public company.” D’Alessandro’s compensation increased 600% between 2000 and 2002.

The article also examines insider trading by Hancock officers and directors, as well as loans to insiders.

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