Docket No. 482

In the Matter of John Hancock Mutual Life Insurance Company, Inc.

March 21, 1994

Disposition Agreement





This Disposition Agreement ("Agreement") is entered into
between the State Ethics Commission ("Commission") and John Hancock
Mutual Life Insurance Company, Inc. ("Hancock") pursuant to s.5 of
the Commission's Enforcement Procedures. This Agreement
constitutes a consented to final Commission order enforceable in
the Superior Court, pursuant to G.L. c. 268B, s.4(j).

On June 16, 1993, the Commission initiated, pursuant to G.L.
c. 268B, s.4(a), a preliminary inquiry into allegations that
Hancock had violated the conflict of interest law, G.L. c. 268A.
The Commission has concluded the inquiry and, on January 11, 1994,
voted to find reasonable cause to believe that Hancock violated
G.L. c. 268A, s.3.

The Commission and Hancock now agree to the following findings
of fact and conclusions of law:

1. Hancock, a Massachusetts corporation, is the nation's
sixth largest life insurer doing business in all 50 states. It
offers an array of life, health and investment products. It has
over 10,000 employees nationwide. Its 1992 Statement of Financial
Position shows total assets of approximately $41 billion, and
revenue of approximately $7.75 billion.

2. Hancock is a Massachusetts domiciled life insurer. As
such, its activities are more comprehensively regulated by
Massachusetts than any other state.

3. Hancock has a Government Relations Department whose
responsibilities include monitoring Massachusetts legislation of
interest to Hancock and presenting Hancock's position on such
legislation to legislators.

4. From 1982 through May 1993, Raeburn B. Hathaway, Jr.
directed the Government Relations Department.[1] Throughout this
time, Hathaway was a Hancock vice-president, and from 1985 through
1993,

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he was corporate secretary. As head of the Government Relations
Department and the Office of the Secretary, Hathaway answered
directly to Hancock's president.

5. Between 1982 and May 1993, the Government Relations
Department had one senior registered Massachusetts lobbyist who was
responsible for Massachusetts legislation, F. William
Sawyer.[2] At various times, Sawyer had an assistant who was also a registered
Massachusetts lobbyist to help him with his responsibilities for
dealing with Massachusetts legislation. Those assistants included
the following: from approximately 1982 to 1986, Barbara Burgess;
and from 1990 through early 1992, Ralph Scott.

6. According to the Government Relations Department's yearly
internal reports, between 1985 and 1993 it identified, on average,
approximately 125 bills filed with the Massachusetts Legislature
deemed to be of interest to Hancock. In those same years, on
average, approximately 10 such bills were enacted into law.
Examples of bills of interest to Hancock, and other life insurers
doing business in Massachusetts, included legislation mandating
various kinds of insurance coverage, including coverage of AIDS
without prior testing; bills placing restrictions on insurance
companies investing in foreign countries; bills requiring gender
neutral premium rates; bills imposing a new sales tax on
Massachusetts service providers, including insurance companies and
their subsidiaries; bills that would potentially subject life
insurance companies to the higher bank tax excise rate; bills
allowing the Savings Bank Life Insurance industry to convert to a
stock company and thereby compete more directly with insurance
companies; bills allowing the conversion of domestic mutual life
insurance companies (such as Hancock) to stock companies; bills
dealing with universal health care; bills dealing with long term
care; and bills dealing with community reinvestment obligations.
Many of these bills had a potential significant economic impact on
Hancock and other life insurers doing business in Massachusetts.[3]

7. As stated in a 1992 Hancock legislative consultant job
description, in order to present Hancock's position on legislation
to legislators, Government Relations Department legislative
consultants were "to establish and maintain relationships with
legislators." That same job description further states,

In Massachusetts, the lobbying effort involves frequent
personal presentations of testimony before legislative
committees as well as daily appearances at the State
House while the legislature is in session in order to
develop contacts with legislators, staff personnel, and
others in state government.

8. Consistent with the above-cited job description for a
Hancock legislative consultant, Sawyer did develop many strong,
effective, personal relationships with Massachusetts
legislators.[4]

9. The reason the Hancock lobbyists created these
relationships was to give Hancock access to these legislators so
that Hancock's position could be effectively communicated.

10. Hancock's lobbyists believed that they used this access
effectively. Government Relations Department reports prepared by
Sawyer make clear that in his view many of the above described
bills were either enacted or defeated due, at least in part, to the
efforts of Hancock's lobbyists.

For example, in the above-mentioned 7/30/87 report, Sawyer
stated, as to a bill (S. 1629) which would have banned AIDS
testing,

Fortunately, lobbyists from Hancock and other insurers
were able to educate legislators on the implications of
Senate 1629. [The Health Care Committee] voted the bill
into a study. In the Massachusetts legislature, this
means it's unlikely there will be further action on the
bill this session.

According to a 10/14/88 report regarding Hancock's retaining
a substantial portion of the state employees benefit contract
previously awarded competitively to Hancock by an independent state
agency, and an effort by the employees' union to rescind that award
and give it back to Blue Cross/Blue Shield through the filing of
legislation, Sawyer stated,

Hancock's Government Relations lobbyists, ably assisted
by many employees in the home office and the Andover
field office, were able to stem the tide to take the
contract away from Hancock. Lobbying efforts resulted in
a 32 to 118 House defeat of the potentially damaging
proposal.

In the 1/16/90 report identified above, Sawyer stated as to
S.2087, "We were successful in adding an amendment in the Senate
that would have excluded the life company's operations from the
breadth of this legislation."

In a 1/10/92 memo as to the Community Reinvestment Act
(H.3248), Sawyer commented, "We vigorously opposed this
legislation citing our present

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community efforts. As a result, this bill was placed in a study
order by the Insurance Committee where it died."

11. One way Hancock's lobbyists created strong relationships
with Massachusetts legislators was by entertaining them through
meals and drinks, golf, and sporting and theatrical events. In
other words, the entertainment created and/or furthered goodwill
and personal relationships which, in turn, helped achieve access to
the legislators.[5]

12. Between August 1, 1987, and May 30, 1993, almost six
years, Hancock's lobbyists entertained individual Massachusetts
legislators with meals and golf worth $50 or more on approximately
240 instances.[6],[7]

On occasion, these meals were quite expensive, costing in the
vicinity of $100 per person. Frequently, the expenses of the
legislator's spouse or guest were also covered. Many of these
meals took place at out-of-state resort settings, including, for
example, St. Thomas, Virgin Islands; Amelia Island, Florida; Disney
World, Florida; and Las Palmas, Puerto Rico.

Hancock lobbyists, primarily Sawyer, also provided a
significant amount of free golf. There are approximately a dozen
instances where Hancock lobbyists treated legislators to rounds of


golf at expensive courses, such as Sawgrass in Florida which costs
approximately $140 per round per person.[8]

13. In addition, on numerous occasions during the same time
period, Hancock entertained Massachusetts legislators at the
corporate boxes it maintains at Fenway Park and Boston Garden, or
through its tickets for events at Foxboro Stadium and the Wang
Center. For the period August 1, 1987 through June 30, 1993, these
corporate box seats and these tickets, with the exception of
Foxboro Stadium, cost Hancock between $60 and $80 each, excluding
any food and beverages. For the most part, Hancock's records do
not indicate which legislators were entertained by its lobbyists in
these corporate boxes or via Foxboro or Wang tickets. Hancock
records do indicate the dollar value of the tickets that were
charged to Government Relations each year.[9] Those numbers,
assuming an average ticket price of $70, indicate that the
Government Relations Department received on average approximately
100 tickets per year. While some of those tickets were apparently
used by department employees, the bulk were used for business
entertainment. Hancock has stipulated that its lobbyists used
these corporate box seats and/or tickets on at least 10 instances
a year in entertaining Massachusetts legislators (and at times
their guests) where the value of the seats or tickets was $50 or
more. Therefore, Hancock has stipulated that there were at least
60 such instances of entertainment during the relevant time period.

14. In summary, when tickets (60 instances) are added to food
and golf expenditures (240 instances), there were at least 300
instances of Hancock, through its lobbyist employees, providing
individual Massachusetts legislators with $50 or more of
entertainment value during the relevant time period. Those 300
instances include entertainment of more than one legislator at an
event. The number of events encompassed in this figure is
approximately 150, or approximately 25 per year.

15. The following are examples of the entertainment Sawyer
provided to Massachusetts legislators:[10]

a. Las Palmas del Mar, Puerto Rico

Between December 8, 1992, and December 14, 1992, Sawyer,
according to his records, stayed at Las Palmas del Mar, an
oceanfront resort located on the southern side of Puerto Rico,
approximately 40 miles from downtown San Juan. Sawyer's records
indicate that his stay was in connection with a Council of State
Government's Conference. (The conference ran between December 9
and December 12, 1992, at the El Condado Hotel in San Juan.)[11]

According to his records, Sawyer provided entertainment of $50
or more in value to each of five legislators at Las Palmas at a
total cost of approximately $1700. This entertainment included
golf, meals and drinks.

In addition, on Friday night, December 11, 1992, Sawyer hosted
a $2,632.50 dinner in San Juan at the La Picola Fontana. That
dinner was attended, according to Sawyer's records, by nine
Massachusetts legislators, six of their guests, eight Massachusetts
lobbyists and their guests, plus Sawyer. Sawyer had arranged for
this dinner several weeks in advance. It cost Hancock a
predetermined flat rate of $87.50 per person.

b. Amelia Island, Florida

From March 10 through March 14, 1993, Sawyer was present for
a Conference of Insurance Legislators conference held at the Amelia
Island Plantation Resort in Florida. Several other Massachusetts
lobbyists and 10 Massachusetts legislators were present as
well.[12]

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According to his records, Sawyer provided entertainment of $50 or
more in value to each of nine legislators at a total cost of
approximately $1,600. This entertainment included golf, meals and
drinks at the Amelia Island Plantation resort. It also included
golf at the nearby Sawgrass course where fees and cart costs per
person ranged from $138 to $148 each.

c. Cape Cod

Each July between 1988 and 1991, Sawyer arranged for himself
and several legislators to play golf at the Hyannisport Club.
Sawyer paid for the fees. In addition, in each of those years he
paid for an expensive dinner the same or the next day after the
golf outing for the members of his foursome, their guests, and
certain other legislators who were on the Cape. In 1988, this
dinner was at the Regatta in Cotuit. In 1989 through 1991, the
dinner was at the Cranberry Moose Restaurant in Yarmouthport. The
cost of the dinner per person was approximately $80. The total
cost of the dinner each year was as follows: 1988 ($736), 1989
($1,045), 1990 ($1,132), and 1991 ($879).

16. Section 3(a) of G.L. c. 268A, prohibits anyone from
directly or indirectly giving a state employee anything of
substantial value for or because of any official act performed or
to be performed by the state employee.

17. Massachusetts legislators are state employees.

18. Anything with a value of $50 or more is of substantial
value for s.3 purposes.[13]

19. By giving individual Massachusetts legislators
entertainment worth $50 or more while each such legislator was in
a position to take official action concerning proposed legislation
which could affect Hancock's financial interests, Hancock's
lobbyists gave those legislators a gift of substantial value for or
because of acts within their official responsibility performed or
to be performed by them. In so doing, Hancock's lobbyists violated
G.L. c. 268A, s.3(a).[14]

20. As a corporation, Hancock acts through and is responsible
for the conduct of its employees. This is so even if the conduct
is unauthorized.[15] Therefore, in that Hancock's lobbyists
violated s.3 by providing certain legislators with free meals,
golf, tickets, and so forth, Hancock also violated G.L. c. 268A,
s.3(a).

21. The Commission is aware of no evidence that any of the
foregoing gifts were given to legislators with the intent to
influence any specific official act by them as legislators. The
Commission is also aware of no evidence that the legislators in
return for gifts took any official action concerning any proposed
legislation which would have affected Hancock. In other words, the
Commission is aware of no evidence that there was a quid pro quo.
However, even if the conduct of Hancock's legislative agents were
only intended to create goodwill, it was still impermissible.

22. There are certain exacerbating factors here. As of May
30, 1985, Sawyer had read and placed in Hancock's files a copy of
Commission Advisory No. 8. Nevertheless, Sawyer continued to
illegally entertain Massachusetts legislators as described above
long after he had read Advisory No. 8.[16]

Moreover, Government Relations Department lobbyists paid
particularly close attention to the Commission's In re Flaherty
decision issued on December 10, 1990, as discussed above.
Notwithstanding this decision, and an internal January 21, 1991
Hancock memo by Hancock's Legal Department warning the Government
Relations Department of that decision, Government Relations
Department employees continued to illegally wine and dine
Massachusetts legislators. Indeed, they did not seriously curtail
the frequency of their use of tickets until 1992.

23. There are also, however, certain mitigating factors.
Hancock has cooperated with the Commission throughout this
investigation. Moreover, it has taken prompt, aggressive, and
thorough steps to correct its unlawful practices.[17]

In view of the foregoing violations of G.L. c. 268A, s.3(a),
the Commission has determined that the public interest would be
served by the disposition of this matter without further
enforcement proceedings, on the basis of the following terms and
conditions agreed to by Hancock:

(1) that Hancock pay to the Commission the sum of one
hundred ten thousand dollars ($110,000.00) as a civil
fine for violating G.L. c. 268A, s.3(a);[18]

(2) that from January 1, 1994, through December 31,
1998, Hancock, on a semi-annual basis, will file a
written report with the Division of Public Records of the
Office of the Secretary of State, with a copy to the
State Ethics Commission, of all expenditures made by
Hancock or its employees, and by any independent
consultants on behalf of Hancock, involving any
Massachusetts state, county or municipal employee; such
reports will identify the date, amount, and nature of
the

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expenditure; the identity of the public employee
involved; and, if a Hancock employee or independent
consultant incurred the expenditure, the identity of that
employee or consultant; and

(3) that Hancock waive all rights to contest the
findings of fact, conclusions of law and terms and
conditions contained in this agreement in any related
administrative or judicial proceeding to which the
Commission is or may be a party.

---------------
[1] After Hancock conducted an internal investigation in April and
early May 1993 of the Government Relations Department's
entertaining Massachusetts officials, it transferred the
supervisory responsibilities for the department from Hathaway to
its General Counsel's office, and accepted Hathaway's early
retirement.

[2] After completing the investigation cited in the preceding
footnote, Hancock, in late May 1993, transferred Sawyer to a
department called the Retail Sector.

[3] For example, in a 7/30/87 Government Relations Report, Sawyer
wrote as to H.573, which would have affected the manner in which
domestic insurance companies reinsured credit risks,

House 573 eliminates a serious competitive problem for
Hancock and other domestic life companies competing with
foreign insurers. ... This will significantly improve
Hancock's market place position [emphasis in the
original].

A 12/13/88 Government Relations Report states as to S. 1790,
a bill restructuring the regulation of group credit life and group
credit accident and health insurance, "This [bill] significantly
increases John Hancock's marketing opportunities."

In a 1/16/90 Government Relations Report, Sawyer wrote,

This proposal [S.2087] sought to tax entities providing
"bank-like" services under the bank tax rate, but because
of the broad and sweeping language used could have
included John Hancock Life Insurance Company and its
subsidiaries. This would have amounted to a double
tax...

[4] In the manager's comments section of Sawyer's 1984 employee
evaluation, Hathaway stated, "Bill has established many strong
relationships with public officials - particularly in the
Massachusetts Legislature where he is a most effective
representative of John Hancock's interests."

[5] Hancock lobbyist Burgess testified, "Certainly if somebody
knows who you are--if you've had dinner together, if you've enjoyed
each other's company--and if you call them, they're likely to
return your call."

[6] The value of this entertainment was approximately $26,000. In
arriving at the $50 or more expense figure, the Commission has
included all expenses on a single day or at a single conference
attributable to a specific legislator. For example, a lunch and
dinner on a given day for a legislator might have each cost less
than $50, but if totalled they equaled or exceeded $50, they have
been included in the $26,000 figure. In addition, where Hancock
paid for a legislator's spouse's expenses, those expenses have been
attributed to the legislator.

According to Hancock's records, a substantial portion of this
entertainment went to legislators who served on the Insurance or
Health Care Committees.

[7] Sawyer's expense records indicate that he spent $50 or more in
the aggregate on individual legislators on 207 instances for a
total expenditure of approximately $24,000. Those same records
indicate that he spent $100 or more on individual legislators in
the aggregate in a calendar year on 70 instances.

Burgess' expense records indicate that she spent $50 or more
in the aggregate on individual legislators on five instances for a
total expenditure of approximately $291. Those same records
indicate that she spent $100 or more on individual legislators in
the aggregate in a calendar year on three instances.

Scott's expense records indicate that he spent $50 or more in
the aggregate on individual legislators on 27 instances for a total
expenditure of approximately $1,792.56. Those same records
indicate that he spent $100 or more on individual legislators in
the aggregate in a calendar year on 16 instances.

[8] The most expensive gratuity documented by Hancock's records was
a $3,200 trip to the Super Bowl in January 1986 for a legislator
and his wife. This is beyond the Commission's statute of
limitations. In any event, this expense is atypical. There is no
other expense remotely similar to it in size. The next most
expensive single expense would be an expensive dinner or round of
golf.

Sawyer's expense records indicate that in January 1991,
Hancock jointly paid, with five other insurance companies, the cost
of a going away dinner for a legislator. Hancock and these
companies also gave that legislator a set of golf clubs valued at
$404.25, of which Hancock's contribution was $67.38, at that
dinner.

[9] Those dollar values are as follows: 1988 ($999.99), 1989
($8,159), 1990 ($12,869), 1991 ($11,822), 1992 ($4,418), and 1993
($6,350).

[10] Because Sawyer invoked his Constitutional rights against self-
incrimination and refused to testify before the

Page 650

Commission, because certain legislators have contested the accuracy
of his records, and because of the confidentiality requirements
contained in c. 268B, s.4 concerning ongoing Commission
investigations, legislators who allegedly received gratuities are
not named in this disposition agreement.

[11] The Commission has determined that eight lobbyists, including
Sawyer, and eight legislators stayed at Las Palmas at this time.
Several of the lobbyists paid for numerous expenses of the
legislators. Most of the legislators staying at Las Palmas did not
attend any of the conference sessions. (Several explained that the
combination of the distance from Las Palmas to San Juan and the
traffic made it impractical to try to get to the conference.)
Basically, they appear to have spent their time enjoying the
facilities at or near Las Palmas.

[12] Information received by the Commission during its
investigation indicates that several of these legislators did not
attend any of the conference sessions. As was the case at Las
Palmas, several lobbyists paid for numerous entertainment expenses
of the legislators.

[13] See Commonwealth v. Famigletti, 4 Mass. App. 584 (1976); EC-
COI-93-14.

[14] For s.3 purposes, it is unnecessary to prove that the
gratuities given were generated by some specific identifiable act
performed or to be performed. As the Commission explained in
Advisory No. 8, issued May 14, 1985, prohibiting private parties
from giving free tickets worth $50 or more to public employees who
regulate them,

[E]ven in the absence of any specifically identifiable
matter that was, is or soon will be pending before the
official, s.3 may apply. Thus, where there is no prior
social or business relationship between the giver and the
recipient, and the recipient is a public official who is
in a position to use his authority in a manner which
could affect the giver, an inference can be drawn that
the giver was seeking the goodwill of the official
because of a perception by the giver that the public
official's influence could benefit the giver. In such a
case, the gratuity is given for as yet unidentified "acts
to be performed."

Specifically, s.3 applies to generalized goodwill-engendering
entertainment of legislators by private parties, even where no
specific legislation is discussed. In re Flaherty, 1991 SEC 498,
issued December 10, 1990 (majority leader violates s.3 by accepting
six Celtics tickets from billboard company's lobbyists). In re
Massachusetts Candy and Tobacco Distributors, Inc., 1992 SEC 609
(company representing distributors violates s.3 by providing a free
day's outing (a barbecue lunch, golf or tennis, a cocktail hour and
a clam bake dinner), worth over $100 per person, to over 50
legislators, their staffers and family members, with the intent of
enhancing the distributors' image with the Legislature and where
the legislators were in a position to benefit the distributors).
Section 3 applies to meals and golf, including those occasions
motivated by business reasons, for example, the so-called "business
lunch". In re U.S. Trust, 1988 SEC 356.

Finally, s.3 applies to entertainment gratuities of $50 or
more even in connection with educational conferences. In re Stone
and Webster, 1991 SEC 522, and In re State Street Bank, 1992 SEC
582.

On the present facts, s.3 applies to entertainment of
legislators by Hancock's lobbyists where the intent was generally
to create goodwill and the opportunity for access, even though
specific legislation was not discussed.

[15] At all relevant times, Hancock had a written policy which
provided in part, "No officer or an employee may receive or give
any gift or other favor of $50 or more in value from or to anyone
with whom the company has or is likely to have any business
dealings."

[16] In addition, the Government Relations Department's lobbyists
had been repeatedly warned, through memos from Hancock's Legal
Department beginning in 1979, that as lobbyists they were
subject to a rule that prohibited them from giving gifts to a public
official with an aggregate value of $100 in any calendar year
regardless of whether in giving such gifts they were merely
socializing or in fact attempting to influence specific
legislation. [See G.L. c. 268B, s.6 and c. 3, s.43, last .]
These memos made clear that the $100 restriction applied to meals
as well as other forms of entertainment. Nevertheless, as
indicated above, Hancock's lobbyists frequently provided individual
legislators with entertainment worth $100 or more in a single
calendar year. (Hancock has agreed to refer its records evidencing
violations of c.3, s.43, last to the Secretary of State's
office.)

[17] Within approximately one month of having first been contacted
by the Boston Globe regarding its lobbyists entertaining
Massachusetts legislators, Hancock conducted an internal inquiry of
its practices, accepted Hathaway's early retirement, reassigned
Sawyer to a non-Government Relations position, transferred
responsibility for the Government Relations Department to the Legal
Department, began cooperating with the Ethics Commission, and
adopted new written operating procedures for entertainment
expenses. In the fall of 1993, Hancock disseminated to all of its
Government Relations employees a memorandum summarizing the
company's policy on expenditures for public officials. The policy
reflects the Ethics Commission's position regarding gratuities. At
the same time, Hancock conducted training sessions for all of its
Government Relations employees regarding Massachusetts conflict of
interest and lobbying laws.

[18] As described above in footnote 7, Hancock's lobbyists also
violated c. 268B, s.6 by giving individual legislators more than
$100 in entertainment in the aggregate in a calendar year on
numerous occasions. Most of the c. 268B, s.6 violations are also
c. 268A, s.3 violations, however. Therefore, the Commission has
not imposed a

Page 651

separate fine for those c. 268B, s.6 violations. That the fine is
not larger recognizes Hancock's cooperation and prompt corrective
measures.

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