Hartford to Settle Kickback Charges

Hartford Financial Services Group agreed Wednesday to pay $20 million to settle charges that it secretly paid insurance brokers to improperly steer corporate customers to the company.

The payments to the brokers, including Brentwood Asset Advisors of Westlake Village and Santa Monica, were called “expense reimbursement agreements,” and were supposedly paid to compensate them for their costs in helping companies choose group annuities.

But the payments were actually kickbacks to induce the brokers to urge their clients to buy Hartford’s annuities, according to complaints filed by the attorneys general of New York and Connecticut.

“This investigation shows how payoffs and deception influenced major deals for retirement products,” New York Atty. Gen. Eliot Spitzer said.

With the aid of the kickback scheme, Hartford sold more than $800 million in so-called single-premium group annuities from 1998 to 2004, Spitzer’s office said. The New York lawsuit cited an e-mail in which a Hartford executive acknowledged that “our prices are not competitive in open bidding situations.”

Annuities are contracts with insurance companies that provide fixed payments in the future. Companies typically buy the single-premium group annuities when they terminate their pension plans but still need to fund their existing obligations, or to provide payments to workers who are leaving the plans.

The cost of the hidden payments was embedded in the annuities and ultimately borne by plan participants through lower investment returns, authorities said. Victims of the scheme included retailer Montgomery Ward Co., accounting firm PricewaterhouseCoopers and sporting goods company Benetton Sportsystem USA.

“We have apologized to plan sponsors for not having provided full disclosure of the compensation paid,” Hartford Chief Executive Ramani Ayer said in a statement.

The charges point up what critics say are rampant conflicts of interest among brokers in all types of retirement plans. Employers hire brokers for objective advice, including where to buy group annuities and which company to hire to provide its 401(k) retirement plan.

Many of these brokers, however, make all or most of their income in commissions from the retirement provider.

“No money can be made providing objective advice,” said Ted Siedle, head of Benchmark Financial Services in Lighthouse Point, Fla., which investigates pension consultants on behalf of employers. “There is more money to be made by giving pensions bad advice than good.”

According to Spitzer’s complaint, Hartford failed to disclose the secret commissions it paid to the brokers, which totaled at least $4 million.

Four brokers were named in the suit but not charged with wrongdoing. Spitzer’s office said its investigation was continuing.

Executives with Brentwood Asset Advisors did not return calls for comment. The other brokerages named were USI Consulting Group of Glastonbury, Conn., Dietrich & Associates of Plymouth Meeting, Pa., and BCG Terminal Funding, which has offices in California, Texas and three other states.

Authorities said BCG had an expense reimbursement agreement with Hartford but had not yet received any payments. A salesman at BCG’s Thousand Oaks office said he had no information about the case.

According to the complaint, brokers also assisted Hartford by giving it information about competing bids.

In one instance, Brentwood allegedly kept Hartford “in the bid” after PricewaterhouseCoopers raised a question about Hartford’s proposal for a $291-million annuity contract.

Brentwood also gave Hartford information about rival bids at the bidding deadline, the complaint said. Hartford won the contract and later gave Brentwood a $100,000 “expense reimbursement” payment.

In another instance, Montgomery Ward, the now-defunct retailer, paid Brentwood $20,000 for advice on two retirement plans, according to Spitzer.

Hartford was chosen, and the insurer was due to pay Brentwood an expense fee of $35,190, the complaint said. Liability for the plans was transferred to GE Consumer Finance after Montgomery’s bankruptcy filing.

In October 2004, four days after Spitzer brought a lawsuit over hidden payments in business insurance lines, an executive from GE Consumer Finance e-mailed Neil Ronco, a Brentwood principal, asking whether his firm received hidden payments in the Montgomery Ward plan, according to the complaint.

Ronco said his firm did not, in an exchange quoted in the complaint.

“I bet you are glad you didn’t play those games,” the GE executive said in an e-mail.

Ronco replied: “It is so ugly, all of us have to deal with this now. Oh well, such is life.”

But later, Ronco called a Hartford executive and told him not to pay the $35,190 expense fee, the complaint said. Ronco also told Hartford to cancel all future expense reimbursement payments, and to tell GE Finance that Hartford did not make such payments to Brentwood, according to the complaint.