MetLife, Inc. has agreed to pay a civil penalty of $10 million in order to settle charges from the Securities and Exchange Commission (“SEC”) that it violated the books and records and internal accounting controls provisions of the federal securities laws.
MetLife’s Retirement and Income Solutions Error
The SEC charges alleged that MetLife’s Retirement and Income Solutions Business improperly released reserves for annuity benefits.
Over an approximately 25-year period, the company sent its annuity clients a form letter six months prior to their 65th birthday, alerting them that they were eligible to begin receiving benefits and instructing them to contact MetLife. Without taking any additional steps to verify addresses nor attempting to reach the individuals via email, certified mail or telephone, MetLife assumed that all individuals who did not respond to the letter were electing to defer their benefits.
Then, near the annuitant’s 70th birthday, MetLife sent a similar form letter via regular mail to each individual alerting them that in order to avoid tax consequences, they must contact MetLife and begin receiving their benefits before they reached 70 ½ years old. This correspondence, which occurred exactly five years after the first mailing, was the only other attempt to reach the annuitants before they coded them as deceased and released the reserves from their accounting liabilities. They also did not attempt to contact beneficiaries before coding them as deceased in their systems.
As a result of ineffective policy design and operating procedures, MetLife discovered a $510 million error in the reduction of its reserve liabilities with the Retirement and Income Solutions business and an $896 million overstating of reserves in the MetLife Insurance Company of Bermuda case. These errors violated the books and records and internal accounting controls provisions of the federal securities laws.
MetLife Reinsurance Company of Bermuda Error
In an additional charge, MetLife overstated its reserves by $896 million for a subsidiary MetLife Reinsurance Company of Bermuda (MrB). This failure was due to conflicting pieces of data that were received in a joint venture, and a failure to reconcile the separate pieces of data.
Internal Control Deficiencies
MetLife’s internal controls unit of the MetLife’s finance department found that there was no evidence to support the basis for accounting practice to release reserves. Further, it was unable to locate any record or documentation of the following:
- The actual policy stating under what circumstances it was deemed appropriate to release reserves or documentation of any kind describing which department or what level leadership created the policy
- Legal review or due diligence performed to approve the policy
- Any record of reviews or testing performed on the policies or procedures as technology advanced, assumptions changed, or shortcomings were identified
Additionally, the company did not properly address issues or concerns that were identified with the policy. As early as 2014, several employees had raised questions related to the practices for releasing reserved funds for the unresponsive individuals; however, the concerns were not escalated to the senior management in a timely manner in order to perform substantive analysis. The concerns did not reach the board of directors or audit committee until December 2017.
The error in the MrB charge is attributed to ineffective internal controls data validation, monitoring, reconciling and auditing and documenting the data received from the company in its joint venture.
Let Our Experience Work for you
Ensuring your firm’s internal controls properly govern its operations will protect it against costly errors and potential reputational and regulatory risks. It is essential for firms to continuously assess and update their policies, procedures and protocols to help confirm that the controls are effective and adequately protect the firm and its consumers. Consequently, your firm must continually test and re-test the procedures.
Jacko Law Group is available to assist your firm in conducting a risk assessment to assess the strength of your testing program and internal controls. Our team of attorneys will analyze testing protocols and results from the testing, identify weaknesses, and assist in drafting enhancements to your policies and procedures. In the event that mistakes are detected, our attorneys will advise on the steps to properly disclose and report them (as needed) as well as any further steps that will help protect your clients and the firm, with an eye towards business and regulatory risk mitigation.
To learn more, contact our team of attorneys today at 619-298-2880.
- Managing Partner and CEO
Michelle L. Jacko, Esq. is the Managing Partner and CEO of Jacko Law Group, PC, which offers securities, corporate, real estate and employment law counsel to broker-dealers, investment advisers, investment companies ...
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