Northern Trust subpoenaed in fraud probe

New York Attorney General Andrew Cuomo, who is probing the death-benefits industry for fraud, subpoenaed Northern Trust Corp. and Open Solutions Inc. for records tied to life-insurer clients, said a person with knowledge of the demands.

Northern Trust and Open Solutions are being queried for documents related to back-office services they provide to insurers that retain death benefits owed to survivors, said the person, who declined to be identified because the demands haven't been made public. Bank of New York Mellon Corp., which also provides services to carriers, agreed to give data to Cuomo and wasn't subpoenaed, the person said.

Cuomo is probing profits that insurers earn on death benefits the carriers retain on behalf of the families of deceased policyholders including military personnel. Cuomo said last week that he demanded information from insurers MetLife Inc. and Prudential Financial Inc. after Bloomberg Markets magazine reported that more than 100 carriers earn investment income on $28 billion owed to beneficiaries.

Andrew McCaskill, a spokesman for Glastonbury, Connecticut- based Open Solutions, and Ron Sommer of Bank of New York Mellon, the world's biggest custody bank, declined to immediately comment. Doug Holt, a spokesman for Chicago-based Northern Trust, didn't immediately return calls seeking comment.

Northern Trust, the third-largest independent custody bank, and privately held Open Solutions have been asked to provide the contracts they have with insurers and information about the fees they collect, said the person. They also were asked about the size and age of accounts, interest paid to beneficiaries, and details on disclosures made to clients, said the person.

Custody banks keep records, track performance and lend securities to institutional investors including mutual funds, pension funds and hedge funds. The three firms that were asked to provide data perform services for life insurers including call-center operations, account-opening kits and financial statements for beneficiaries.

Cuomo announced on July 29 an investigation into what he called "secret profits" of life insurers.

Insurers market the accounts as a service to allow bereaved beneficiaries time to think about what they'll do with the payout. Carriers make money by investing the funds in bonds and keeping the difference between returns and the interest they credit to the accounts.