The Hartford Settles with SEC on Directed Brokerage Use

The Hartford Financial Services Group, Inc. has announced a settlement with the Securities and Exchange Commission (SEC) related to its use of directed brokerage and revenue sharing in its mutual fund and variable annuity business.

According to the announcement, under terms of the settlement, The Hartford has agreed to pay $55 million to be distributed to funds that participated in its directed brokerage program. The settlement resolves an SEC investigation focused on The Hartford’s revenue sharing payments to broker-dealers and its program for directing mutual fund portfolio trades to them in recognition of their selling the company’s funds.

The SEC found The Hartford improperly benefited by using directed brokerage to reduce its revenue sharing obligations to broker-dealers without disclosing that benefit to the mutual fund shareholders or to the Board of Directors of its mutual funds. The company stopped using this practice at the end of 2003, CEO Ramani Ayer said in the announcement.

The Hartford also has formed a disclosure review committee to ensure prospectuses and all other disclosures for investment products are accurate, complete and timely, the announcement said.

In April 2005, the company set aside a $66-million reserve to have funds available to resolve federal and state government market timing and directed brokerage investigations involving its mutual funds and annuity businesses (See Hartford Sets up $66M Legal Reserve for Probes at http://www.plansponsor.com/pi_type10/?RECORD_ID=29218).

In July of this year a US District Court in Connecticut dismissed a shareholder lawsuit accusing the firm of concealing payments of contingent commissions to insurance brokers and participation in bid-rigging schemes, saying the lawsuit was filed after a two-year statute of limitations (See Hartford Contingent Commission Suit Dismissed at http://www.plansponsor.com/pi_type10/?RECORD_ID=34268).