U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19656 / April 13, 2006
Accounting and Auditing Release No. 2413 / April 13, 2006
SEC v. Thom A. Faria, Stephen J. McLaughlin and William M. Stickney, United States District Court for the District of Massachusetts, Civil Action No. 06-10657 -RCL
SEC Charges Three Former Officers of Metlife Inc. Subsidiary New England Financial With Fraudulent Scheme to Hide Expenses
The Commission filed a civil fraud action today in federal district court in Massachusetts against three former officers of New England Financial (NEF), an insurance company subsidiary of MetLife, Inc., for engaging in a scheme to improperly hide NEF expenses that led directly to the publication of materially false financial statements by MetLife and NEF. The three defendants are Thom A. Faria, of Needham, Massachusetts, the former president of the NEF distribution channel and senior vice president of MetLife, Stephen J. McLaughlin, of Plainville, Massachusetts, a former senior vice president of NEF, and William M. Stickney, of Hopkinton, Massachusetts, a former assistant regional vice president at NEF. Without admitting or denying the Commission's allegations, McLaughlin and Stickney each consented to the entry of final judgments enjoining them from future violations of the federal securities laws, ordering payment of disgorgement, prejudgment interest and civil penalties, and imposing a five year officer and director bar on McLaughlin.
The Commission's complaint alleges that over a period of years defendants engaged in a scheme to hide certain NEF expenses in an effort to make NEF appear more efficient than it actually was. The complaint alleges that defendants hid certain non-commission expenses by reclassifying them as commission expenses in NEF's internal books and records. According to the complaint, on more than one occasion McLaughlin and Stickney attempted to cover-up their reclassification activity, thereby hindering the ability of MetLife to discover the improper activity sooner. All told, the complaint alleges that the scheme resulted in the improper reclassification of over $100 million in NEF expenses, the direct result of which was the publication of materially false overstatements of MetLife and NEF net income in financial statements filed with the Commission.
The complaint alleges that through their fraudulent conduct, defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, and Section 34(b) of the Investment Company Act of 1940, as well as aided and abetted uncharged MetLife violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The Complaint also alleges that Faria aided and abetted uncharged MetLife/NEF violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Without admitting or denying the allegations of the complaint, McLaughlin and Stickney have consented to the entry of final judgments that (1) permanently enjoin them from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and Section 34(b) of the Investment Company Act, as well as from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder; (2) require them to pay civil penalties of $30,000 and $15,000, respectively; (3) require them to disgorge $35,625 and $15,800, respectively, plus pre-judgment interest in the amount of $3,822.14 and $1,695.15, respectively; and (4) as to McLaughlin, bars him from serving as an officer and director of a public company for five years.
The Commission also announced today that it would not bring any enforcement action against MetLife or NEF because of MetLife's extensive cooperation in the Commission's investigation of the improper reclassifications that are the subject of the Commission's complaint. MetLife's cooperation consisted of prompt self-reporting, an independent internal investigation, sharing the results of that investigation with the government, disciplining responsible wrongdoers, and implementing new controls designed to prevent the recurrence of the improper conduct.