MMC Says Employees "Conduct Was Shameful"

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By Mark E. Ruquet

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NU Online News Service, Jan. 31, 4:25 p.m.EST?Marsh & McLennan Companies Chief Executive OfficerMichael G. Cherkasky told a news conference today that his firm's$850 million agreement to settle price-fixing charges with the NewYork attorney general's office heralds a new start for thecompany.[@@]

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MMC admitted no guilt, but Mr. Cherkasky in a letter of apologyannouncing the settlement called the conduct those executivesinvolved "shameful."

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"I can't say this is a day of great rejoicing in MMC, but Ithink it is a day of relief, and it is a day that we will mark as abeginning. We look forward to the future," he said at theconference.

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In its settlement with Attorney General Eliot Spitzer's officeand the New York State Insurance Department, New York-based MMCwill set up a fund from which it will pay clients restitution forcontingency fees the company received over a three-year period from2001 through 2004.

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The period involved is when members of the company's Marshbrokerage subsidiary were accused by Mr. Spitzer's office in acivil suit of rigging bids with insurers and steering commercialinsurance business their way in exchange for contingency fees thatserved as kickbacks.

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The payments into the fund, to total $850 million, will be madebeginning June 1, with a $255 million payment, followed by another$255 million payment in 2006, and a $170 million payment in both2007 and 2008.

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Mr. Cherkasky said the bulk of the payments?$131 million?will goto clients in California, followed by New York with $94 million,Pennsylvania with $58 million, Texas at $55 million, and Illinoisat $45 million. The amount depended upon the number of corporateheadquarters in the state, he said.

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The money will be paid directly to clients. They will becontacted by MMC and will be offered an opt-in or opt-outagreement. Payments out of the pool will be based on the number ofparticipants. Those opting-in would agree not to take any legalaction, Mr. Cherkasky explained.

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Under the agreement, there will be no fines or other costs paidto the state, or an admission of guilt. There will also be nocriminal prosecution, Mr. Cherkasky said.

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The agreement also lays out terms for future disclosure toclients and transparency of the brokerage transaction that Mr.Cherkasky said would make MMC a leader in the industry.

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MMC issued a letter of apology to the attorney general, which isattached to the online press announcement from the attorney generaland Insurance Department offices.

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Mr. Cherkasky said the fault was with a handful of employees andnot institution.

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"What we have said is we have a few people inside of thiscompany who have done things we are ashamed of," he said."Overwhelmingly, this company is made up of fine individuals whoobey the law and our code of conduct. We don't believe, as acorporate entity, we have ever been involved in a pattern ofcovering-up or pattern of criminality. It is an important legaldistinction."

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The agreement does not settle any civil litigation or otherinquiries by other state attorneys general or insurance regulators.However, Mr. Cherkasky said he was hopeful that the structure ofthe settlement, that benefits clients, would stop their suits andother regulators from pursuing their own litigation.

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"There is a vigorous conversation going on [with attorneysgeneral and regulators across the country]," he said. "We are very,very hopeful that they will see what we have done and take note ofit, and we will be able to move forward quickly."

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Civil actions continue to mount. Just last week, in U.S.District Court Southern District of New York, Judge Shirley W. Kramordered the consolidation of a securities fraud class action suitled by state pension funds.

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The class members are The Public Employees Retirement System ofOhio, State Teachers Retirement System of Ohio, the Ohio Bureau ofWorkers' Compensation, and the State of New Jersey?Department ofTreasury?Division of Investment. The suit charges MMC inflated itsearnings through bid-rigging and other abuses. The plaintiffs claimthey lost $100 million when the stock faltered after the abuse wasuncovered.

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The investment community reacted positively to the news.

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Brian Meredith with Banc of American Securities issued aresearch report calling the settlement agreement "a big positive,"reducing strains on the company.

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Vinay Saqi with Morgan Stanley said the settlement "is verymanageable" for the company and would help the company manage thecash flow. Since there is no fine or penalty involved, he said theamount may be tax deductible.

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However, Mr. Saqi warned that other states could still press forsettlements of their own. Morgan Stanley estimates the total costin the end, from other states and civil action, could end upcosting the company $2 billion.

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Standard & Poor's Rating Services issued a statement sayingthat it is keeping the company on CreditWatch with negativeimplications.

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The markets reacted positively to the news, with MMC's shares onthe New York Stock Exchange rising more than 4 percent, or $1.41 ashare, to $32.50 by 4 p.m.

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