Hartford Settles With SEC Over Shelf Space

Hartford Financial Services Group and two of its affiliates failed to disclose to the funds’ board that it used fund assets to pay for marketing and distribution, according to a settlement with the Securities and Exchange Commission.

Hartford Financial Services Group and two of its affiliates failed to disclose to the funds’ board that it used fund assets to pay for marketing and distribution, according to a settlement with the Securities and Exchange Commission. Hartford agreed to pay $55 million to settle charges that it misrepresented to shareholders and failed to disclose to the board that it used fund assets for directed brokerage. The funds’ prospectuses said it used its own assets, not shareholders’, to pay for shelf space. Hartford consented to the issuance of the SEC’s order without admitting or denying the findings.

The onus is not on the board but on the service provider to make sure the directors are informed of all the material facts. Still, during the contract renewal process, directors should ask detailed questions of each of the service providers. One catch-all question is to ask the service provider if there are any other items that are important, a lawyer suggested.

Similar cases could follow. “It’s not clear whether there will be other directed brokerage cases or whether this action turns on specific language of the prospectus,” said Fran Cohen, partner at Bingham McCutchen. Hartford also has an excessive fee case class action suit pending (FD, June 2005).