MassMutual’s board terminated the company’s CEO in June in part because he allegedly made unauthorized trades in a shadow retirement account, according to a report in the Wall Street Journal.
The board agreed to set up the account in 1999, when it hired Robert J. O’Connell away from American International Group Inc., New York, where he had been president of AIG’s domestic life insurance unit. The account was intended to compensate O’Connell for benefits he lost when he left AIG.
A shadow account permits hypothetical trading in financial instruments, allowing the account value to rise and fall on paper, in line with the return on the actual investments.
Under the rules set for the account, O’Connell was to trade only in mutual funds and selected blue-chip stocks. But he allegedly also traded in a number of initial public offerings, lifting the value of the account from an initial $4 million to more than $30 million, according to the report.
A MassMutual investigator concluded O’Connell was able to grow his account at least in part by trading early in the morning on some stocks’ previous-day closing prices, allowing him to take advantage of late-breaking, favorable news about the companies.