Products December 10, 2008

ING Broker/Dealers Launch Paperless Process for Advisers

The broker/dealers of ING Advisors Network have begun rolling out imaging to enable their registered representatives' offices to become virtually paperless environments.
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The imaging system, which is integrated into the broker/dealers’ propriety platform, ING SmartWorks, will enable ING’s representatives to capture, process and retrieve documents vital to their broker/dealer and non-broker/dealer business, according to a press release.

ING broker/dealers have already been handling most back-office operations through imaging, the company said. The new effort, which began rolling out over the past month, will integrate existing system data and will allow supervisors and operations staff to easily access appropriate documents. Non-broker/dealer business documents are segregated, so that they are not accessible by ING Advisors Network or their individual broker/dealer.

“The Web integration means that our reps only need a scanner to go paperless,” said Kevin Laraia, COO at ING Advisors Network, in the release. “As we move towards straight-through processing and continue to expand functionality of our systems, the staff time saved by not faxing, mailing, and filing can be used to better serve clients and build their businesses. Best of all, because it is Web-based, they have access from anywhere—an off-site client meeting, at home, or at the office.”

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Compliance December 10, 2008

Hartford Stock Drop Cases Accumulate

Hartford Financial Services Group Inc. has been hit with two new stock drop class action lawsuits.
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The lawsuits allege a fiduciary breach by continuing to have company stock as a retirement plan investment option after it was no longer prudent because of the firm’s subprime mortgage exposure.

In the two federal court suits filed last week in Connecticut, employees Denise Jump and Joe DeSalvo claim having company stock in the plan was no longer appropriate because of the company’s heavy exposure to mortgage-related assets—including investments in the troubled Fannie Mae, Freddie Mac, Lehman Brothers Holdings, Washington Mutual, and American Insurance Group.

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According to the complaints in both lawsuits, in 2007 Hartford’s retirement plan held more than $650 million worth of Hartford common stock, which made up 21.4% of the plan’s total assets.

The company violated the Employee Retirement Income Security Act (ERISA) by keeping the company stock option even though they knew or should have known Hartford’s stock price was artificially inflated and that company officials improperly issued reassuring statements, despite their subprime market exposure, the suits charged.

The lawsuits alleged the defendants failed to conduct an appropriate investigation into whether Hartford stock was a prudent investment to the plan. The lawsuits also alleged that the defendants breached their duties by failing to:

  • develop appropriate investment guidelines for Hartford stock
  • divest the plan of Hartford stock
  • discontinue further contributions of Hartford stock to the plan
    consult or appoint independent fiduciaries regarding the appropriateness of investment in Hartford stock
  • resign as fiduciaries of the plan.

Share Value Drop

In May 2007, according to the complaints, Hartford’s stock traded as high as $106 while the company continued to report positive earnings results. In August, the news about Hartford’s exposure to subprime losses came to light. As the credit crisis grew, Hartford’s stock price by October 31, 2008, was just over $10 per share.

Not only that, the suit claimed, but Hartford’s decision to take on more risk with its subprime mortgage has negatively impacted earnings and capital needs in its variable annuity businesses, which has caused further losses to Hartford’s stock price.

“Defendants continued to invest and to allow investment in the Plan’s assets in Company stock even though they knew or should have known that Hartford would require additional capital to remedy its risky exposure to the credit and subprime mortgage markets, and the deterioration of its capital, resulting in a decrease in the value of Hartford stock,” the complaints said.

The latest lawsuits come on the heels of another lawsuit filed November 12 by another Hartford employee who also alleged that Hartford breached its ERISA fiduciary duties by concealing from its employees the company’s exposure to losses in the subprime industry (see “The Hartford 401(k) Draws Stock Drop Scrutiny’)

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