SEC Probe of Hartford Life Opens Federal Front

November 15, 2004

The U.S. Securities and Exchange Commission has opened a new front in the widening investigation of insurance brokerage fees, launching a probe of Hartford Life, a unit of the Hartford Financial Services Group Inc.

The Hartford announced the investigation in a filing with the SEC released last Friday. The probe, launched by the federal regulatory agency’s Division of Enforcement, focuses on the Hartford-based company’s use of “directed brokerage” in connection with its mutual funds, the insurer said.

A “directed brokerage” is a practice in which mutual fund companies steer trades to brokers as a reward for selling their funds to retail clients.

The Hartford was named last month in a lawsuit by New York Attorney General Eliot Spitzer against Marsh & McLennan, alleging policy brokers took payoffs from insurance companies to steer corporate clients their way rather than get the best prices, as they are required.

The lawsuit prompted numerous civil lawsuits by stockholders and insurance customers, in addition to lawsuits by other state attorneys general, including Connecticut Attorney General Richard Blumenthal.

The SEC probe focuses on The Hartford’s mutual funds and Hartford Life, which provides investment, retirement, estate planning and group benefits insurance products to individual and business customers.

The Hartford also said it has been subpoenaed by Illinois and Texas officials regarding broker compensation and “possible anticompetitive activity.” Blumenthal already has subpoenaed The Hartford seeking information on broker fees.

Spokesmen for the SEC and The Hartford would not comment Friday.

Stephan Christiansen, director of research at Conning Research & Consulting in Hartford, an industry analysis firm, said the SEC probe may be due to The Hartford’s status as a publicly traded company.

He cited the securities probe of Putnam Investments, an investment management and mutual fund firm of which Marsh & McLennan is the parent company. Putnam was a major figure last year in the scandal over improper trading at fund companies.

In April, Putnam agreed to pay $110 million to settle federal and state allegations.

Peter Unger, an ex-lawyer at the SEC’s division of enforcement and now an attorney at Howrey, Simon, Arnold & White in Washington, D.C., said the SEC has been following up on actions taken by Spitzer and its latest move against The Hartford is not surprising.

“They’ve been working hand in hand,” he said.

It’s not clear from The Hartford’s announcement whether the SEC is taking formal action involving subpoenas or is an informal action that does not call for subpoenas.

Blumenthal said the action by the SEC “could mean there’s a more intensive federal investigation, which would add another major dimension.”

Potential securities violations could include the failure to disclose relevant agreements or material in federal filings and other issues, he said.

“It does very powerfully suggest that the federal government may be an active ally with all of the abundant resources it can bring to bear,” Blumenthal said.

Blumenthal said he has issued about 43 subpoenas, including The Hartford among his targets. His investigation is aimed at uncovering potential bid-rigging and other unlawful practices that may have stifled competition and harmed insurance customers, including municipalities.

Shares of The Hartford fell 3.5 percent to close at $62 Friday on the New York Stock Exchange.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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