Whats Next For Spitzer?

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I keep waiting for the other shoe to drop in the bid-riggingprobe of top brokers and insurers by New York Attorney GeneralEliot Spitzer.

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I know Mr. Spitzer cashed in big time by convincing Marsh tocreate an $850 million policyholder restitution fund andsubstantially change the way the firm does business (although hefailed to secure any admission of wrongdoing). I also hear that heand at least two other state attorney general offices are insettlement discussions with the next-biggest broker, Aonwhich,despite not being named in any of Mr. Spitzers public actions, setup a modest $50 million settlement fund.

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But I cant shake the feeling that another major player is goingto take a huge hit before this is all over. You see, Mr. Spitzerkeeps racking up plea bargains. Indeed, when Marsh announced itssettlement, we ran a story headlined: “Spitzer Says To Expect MorePleas.” Two weeks later, he made good on his threat, as three moreindustry scam artists pleaded guilty.

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That brings to nine the number of mea culpas filed so far inresponse to Mr. Spitzers probesfour from AIG, two from ZurichAmerican, two from Marsh and one from ACE. The problem is that allnine had their sentencing deferred, based on their anticipatedcooperation in future trials.

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What future trials? Who will be charged? When? For what? Theseare the lingering questions haunting an industry struggling torestore its tarnished reputation. The sooner we get on with thisnasty business, the sooner insurers and brokers can put the scandalbehind them.

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What is Mr. Spitzer waiting for? There are two possibilities Ican think of. One is that he doesnt have enough hard evidence tonail the party (or parties) he is still after and is stockpilingwitnesses while putting the pieces of his case together.

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The other is that he already has enough evidence and eyewitnesstestimony to use as leverage to force another major settlementalong the lines of the one he negotiated with Marsh but is keepingthe public in the dark while he hammers out the final details. Playball with his office, he might have told his next target, or elsehe will move for a criminal indictment and file civil charges aswell based on testimony from those who have already pleaded guilty,plus whatever smoking guns he pulled from company records.

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This would be a potent threat, indeedespecially if his target isa publicly-traded company. Once Mr. Spitzer announces anyaccusations, the targets share value would plummetwith the lossperhaps dwarfing any proposed settlement. A trial could drag outfor years, further destroying a companys reputation and viabilityalong the way. A negotiated dealhowever embarrassing or costlymightseem like a blessing in comparison.

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This is nothing more than idle speculation on my part, but whyelse would plea-bargainers be kept waiting for their sentencesunless Mr. Spitzer has more brokers and/or insurers on the hotseat?

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No matter what happens now, Mr. Spitzer has already foreverchanged the commercial insurance business, with greater disclosurethe rule of the day and brokers left with billions to replace indiscredited placement fees. Risk managers and regulators will belooking at broker and insurer behavior much more carefully.

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The only question is how many more people are going to be takendown and how many more companies are going to pay through the nosebefore Mr. Spitzer turns his attention elsewhere?

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Sam Friedman

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Editor-In-Chief


Reproduced from National Underwriter Edition, February 25, 2005.Copyright 2005 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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