| Date: | 03/21/1994 |
|---|---|
| Organization: | State Ethics Commission |
| Docket Number: | 482 |
offered by
Settlement
Settlement In the Matter of John Hancock Mutual Life Insurance Company, Inc.
Table of Contents
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.