Compliance November 12, 2006

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.
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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.

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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).

Compliance November 12, 2006

NASD Orders More Fines for 529 Plan Violations

The National Association of Securities Dealers (NASD) has fined Chase Investment Services Corporation of Chicago and MetLife Securities, Inc. of New York $500,000 each for failing to establish systems and procedures to supervise the sales of 529 College Savings Plans.
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The National Association of Securities Dealers (NASD) has fined Chase Investment Services Corporation of Chicago and MetLife Securities, Inc. of New York $500,000 each for failing to establish systems and procedures to supervise the sales of 529 College Savings Plans.

According to the NASD announcement, the association found that from January 2002 through August 2004 for Chase, and from January 2002 until March 2005 for MetLife, neither firm had specific procedures governing the sale of 529 Plans, including procedures governing suitability requirements. The firms made these sales without providing specific criteria or guidance for their registered representatives to use when recommending 529 Plan purchases, NASD said.

In addition, NASD charged both firms with failing to establish criteria for supervisors to use when reviewing 529 Plans recommended by their registered representatives and failing to establish effective procedures for documenting the suitability of determinations that were made, the announcement said.

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NASD also ordered Chase to pay approximately $288,500 into about 300 accounts of customers disadvantaged by the violations, and ordered MetLife to pay approximately $376,000 into a similar number of accounts.

MetLife had announced the possibility of NASD charges last November (See MetLife Faces Possible 529 Plan Charges at http://www.plansponsor.com/pi_type10/?RECORD_ID=31431). MetLife and Chase are the second and third firms to face fines from NASD. In October 2005 NASD announced it had ordered Ameriprise Financial Services, Inc. of Minneapolis to pay a fine of $500,000 for failing to adequately supervise the firm’s sales of 529 plans (See NASD Fines Ameriprise Regarding 529 Plan Sales at http://www.plansponsor.com/pi_type10/?RECORD_ID=31244).

In March, the Municipal Securities Rulemaking Board (MSRB) filed interpretive guidance with the Securities and Exchange Commission (SEC) related to the sale of 529 plans (See MSRB Files Guidance Related to 529 Plan Sales at http://www.plansponsor.com/pi_type10/?RECORD_ID=32905).

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