Docket No. 498

In the Matter of New England Mutual Life Insurance Company, Inc.

September 22, 1994

Disposition Agreement




This Disposition Agreement ("Agreement") is entered into
between the State Ethics Commission ("Commission") and The New
England Mutual Life Insurance Company, Inc. ("The New England")
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 August 9, 1993, the Commission initiated, pursuant to G.L.
c. 268B, s.4(a), a preliminary inquiry into allegations that The
New England had violated the conflict of interest law, G.L. c.
268A. The Commission has concluded its inquiry and, on June 7,
1994, voted to find reasonable cause to believe that The New
England violated G.L. c. 268A, s.3.

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

1. The New England, a Massachusetts corporation, is the
state's third largest life insurer. It employs 2,300 employees in
its Boston office, and has approximately 3,000 agents nationwide at
85 general agencies.

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

3. The New England has a Government Relations Department
whose responsibilities include monitoring Massachusetts legislation
of interest to the company and presenting its position on such
proposed laws to members of the legislature.

4. Between June 1988 and January 1991, Alvaro Sousa was the
company vice president who served as the Massachusetts Government
Relations officer. Within the Government Relations Department,
Sousa reported to Vice President James Gallaher and Senior Vice
President Gordon MacKay. The Government Relations Department also
retained Joseph McEvoy as an outside legislative consultant for
Massachusetts legislation. Gallaher, Sousa and McEvoy were all
registered as legislative agents in Massachusetts.

5. In concert with the Life Insurance Association of
Massachusetts ("LIAM"), The New England tracks, monitors, and
lobbies on several hundred pieces of legislation per year that
affects the insurance industry. On average, approximately ten
bills are enacted each year into law. Among the proposed laws The
New England was interested in between 1988 and 1991 were bills
mandating various kinds of insurance coverage; bills requiring
gender neutral premium rates; bills mandating premium discounts for
non-smokers; bills seeking to provide greater privacy to insurance
consumers; bills that would subject life insurance companies to
the higher bank tax excise

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rate; bills allowing the Savings Bank Life Insurance industry to
convert to stock companies and thereby compete more directly with
insurance companies; and bills dealing with long term care.

6. Sousa's annual performance plans required him to lobby
for the enactment of legislation beneficial to The New England, and
for the defeat or modification of bills unfavorable to The New
England. As part of his lobbying responsibilities, Sousa's
performance plans directed him to enhance existing favorable
relations with government officials, and to establish new contacts
with other government officials.

7. Consistent with his annual performance plans, Sousa
developed strong, effective personal relationships with
Massachusetts legislators.[1] The reason The New England lobbyists
maintained or created these relationships was to give The New
England effective access to legislators.

8. The New England's lobbyists believed that they used this
access successfully. Department reports prepared by MacKay make
clear that, in his view, many of the above described bills were
either enacted or defeated due in part to the efforts of The New
England's lobbyists. For example, in a November 1, 1989 memorandum
entitled, "1989 Major Public Affairs Accomplishments", MacKay
wrote:

Among other issues in Massachusetts we successfully
lobbied AIDS; a possible tax increase; unisex; and two
troublesome privacy bills, avoiding potential negative
impact on the industry.

TNE also successfully lobbied the Massachusetts
"fraudulent signature" bill, avoiding potential costly
and duplicative problems. The bill would have required
certification of a signature to change a beneficiary in
all life policies.

TNE successfully led the LIAM industry effort to defeat
the non-smoker rating bill by 98-46 roll-call vote in the
House.

9. One way The New England's lobbyists created strong
relationships with Massachusetts legislators was by entertaining
them through meals, drinks, golf, sporting and theatrical events.
This entertainment created or enhanced goodwill and personal
relationships which, in turn, translated into effective access to
the legislators.[2]

10. Between June 24, 1988 and November 14, 1989, The New
England lobbyists and Government Relations personnel entertained
individual Massachusetts legislators and aides with meals, drinks,
golf and tickets worth $50 or more on approximately 47
occasions.[3] In addition, on January 8, 1991, New England
lobbyists helped host a testimonial dinner for a recently retired
state legislator who had been regarded as "very helpful" to the
insurance industry. Along with a number of other insurance
companies, The New England presented the legislator with a $404 set
of golf clubs.[4] The total value of these gratuities and
entertainment was approximately $6,500.

11. On occasion, these meals were quite expensive, costing in
the vicinity of $100 per person. Frequently, the expenses of a
legislator's spouse or guest were also covered. Many of these
meals took place at out-of-state resort settings, including: Amelia
Island, Florida; Newport, Rhode Island; Scottsdale, Arizona; and
Stowe, Vermont. On at least 17 occasions, The New England provided
free rounds of golf to Massachusetts legislators and legislative
aides.

12. The following are examples of the entertainment The New
England lobbyists provided to Massachusetts legislators:

(a) Cape Cod "Massachusetts Nights"

On June 30, 1988 and 1989, The New England Government
Relations Department sponsored a "Massachusetts Night" for current
and former Massachusetts state legislators at the Wequasset Inn, in
Chatham, MA. The events consisted of a cocktail reception and
dinner, including a clambake, $45 bottles of wine, shrimp and
oyster hors d'oeuvres and an open bar. The New England spent
$4,008 on this event in 1989, and $2,558 in 1988. The cost per
couple was approximately $360 in 1989 and $200 in 1988. The
dinners were attended by New England lobbyists, Government
Relations personnel, former legislators and current legislators and
their guests. Based on records and testimony it appears four
legislators attended in 1988 and seven legislators attended in
1989. Limousine transportation was provided to and from the event
to some legislators in 1988 and 1989.

(b) Newport, Rhode Island

In late July 1989, the Council of State Governments held a
meeting in Newport, Rhode Island. Numerous Massachusetts
legislators attended the meeting. During this time, The New
England sponsored and organized an event at the Belcourt Castle for
attending legislators and lobbyists.[5] The event included a tour
and mystery game through the castle, a cocktail reception in the
Gothic Ballroom, and

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dinner in the Italian banquet hall. Piano and violin music was
provided throughout the evening. The total cost of the event was
$5,742.52, with a per couple cost of approximately $152.00. At
least five Massachusetts legislators and their guests attended this
event.

(c) Amelia Island

During March 15, 1989 to March 21, 1989, Gallaher and Sousa
attended a National Conference of Insurance Legislators conference
at Amelia Island, Florida. According to their expense records,
Sousa and Gallaher provided entertainment of $50 or more in value
to nine Massachusetts legislators at Amelia Island at a total cost
of approximately $741.71.[6] This entertainment included golf,
meals, and drinks. Specifically, Sousa and Gallaher hosted three
golf outings on two days, and a dinner at the Steak House in
Fernandina Beach, FL.

13. General Laws c. 268A, s.3(a) prohibits anyone from giving
a state employee anything of substantial value for or because of
any official act performed or to be performed by the state
employee.

14. Massachusetts legislators and legislative aides are state
employees.

15 Anything with a value of $50 or more is of substantial
value for s.3 purposes.[7]

16. By giving individual Massachusetts legislators and
legislative aides entertainment worth $50 or more while each such
legislator or aide was in a position to take official action on
proposed legislation that affected The New England's financial
interests (or had taken past official action), The New England's
lobbyists and Government Relations officials gave those legislators
and aides gifts of substantial value for or because of acts within
their official responsibility performed or to be performed by them.
In doing so, The New England's lobbyists and Government Relations
officials violated G.L. c. 268A, s.3(a).[8]

17. As a corporation, The New England acts through and is
responsible for the conduct of its employees and agents.
Therefore, The New England violated G.L. c. 268A, s.3(a) by
providing certain legislators and aides with free meals, golf,
tickets and other entertainment.

18. The Commission is not aware of 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 unaware of evidence that the legislators, in
return for gifts, took any official action concerning any proposed
legislation which would have affected The New England. In other
words, the Commission is aware of no evidence that there was a quid
pro quo. However, even if the conduct of The New England's agents
was only intended to create goodwill, it was still impermissible.

19. There are substantial mitigating factors. In early 1990,
well before the Commission initiated its investigation, The New
England promulgated new Public Affairs guidelines and established
strict reporting procedures which prohibited its employees from
offering anything valued at $50 or more to a public official.
These internal guidelines succeeded in bringing The New England's
lobbying activities into compliance with the Massachusetts conflict
of interest law. With the single exception noted above, The New
England's lobbyists have not provided any Massachusetts legislator
or aide with $50 in entertainment on any occasion during the past
4 1/2 years. In addition, as a result of information developed
during this investigation, the New England has voluntarily revised
its guidelines to better ensure continued compliance with the
conflict of interest law. The New England cooperated with the
Commission throughout this investigation.

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 The New England:

(1) that The New England pay to the Commission the sum
of twenty thousand dollars ($20,000.00) as a civil fine
for violating G.L. c. 268A, s.3(a);

(2) that The New England 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] According to Sousa's 1987 annual performance appraisal, "Mr.
Sousa has shown an uncanny knack and ability to gain the respect
and trust of a host of legislators and key staff persons."

[2] MacKay analogized lobbying legislators to the selling of
insurance. He testified that it was very difficult to sell
insurance to someone that you did not know. The likelihood of a
successful sale, however, was greatly

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increased if the potential buyer was a relative, friend, or a
referral. Likewise, the chance for successful lobbying efforts
were improved by the existence of personal relationships with
legislators.

[3] In arriving at the $50 or more expense figure, the Commission
included all expenses on a single day or a single conference
attributable to a specific legislator. For example, dinner, a golf
outing and drinks given to a single legislator during a three day
conference might have each cost less than $50, but if aggregated
they equaled or exceeded $50. In addition, where The New England
paid for the expenses of a legislator's spouse, those expenses have
been attributed to the legislator.

[4] As discussed in detail in paragraph 19, in early 1990, The New
England adopted guidelines prohibiting gifts to public officials
and halted its practice of providing public officials with
entertainment valued at $50 or more. These guidelines did not
address gifts to former legislators, and thus did not prevent the
unlawful gift of the golf clubs. The New England has since revised
its entertainment guidelines to prohibit similar conduct in the
future.

[5] At least one other insurance company contributed to the cost of
this event.

[6] None of these gratuities individually exceeded $50, but when
aggregated over the course of the conference they exceeded $50 for
each of the nine legislators. Although the Commission first made
specific mention that multiple gratuities given to an official
during the course of a single conference would be aggregated in In
re John Hancock Mutual Life Insurance Company, 1994 SEC ___ (issued
March 24, 1994), the Commission announced in Advisory No. 8
(published May 15, 1985) that a course of conduct of giving
gratuities to a public official would be evaluated as to value.

[7] See Commonwealth v. Famigletti, 4 Mass. App. 584, 587 (1976);
EC-COI-93-14.

[8] 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):

[E]ven in the absence of any specifically identifiable
matter that was, is or soon will be pending before the
official, section 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 John Hancock Mutual Life
Insurance Company, 1994 SEC (Hancock violated s.3(a) by providing
meals, golf and event tickets to legislators); In re Flaherty, 1991
SEC 498 (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 (distributors'
association violates s.3 by providing 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 legislators who 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; In re State Street Bank, 1992 SEC 582.

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


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