Broker Scandal Spurs Three More Guilty Pleas Marsh managing director, two AIG employees bring Spitzer total to nine mea culpas
When Marsh & McLennan Companies Inc. announced an $850 million settlement in response to allegations of bid-rigging and contingency fee abuse two weeks ago, New York Attorney General Eliot Spitzer warned that the six guilty pleas produced by his probe of parties suspected of defrauding risk managers would not be the last.
Last week, Mr. Spitzer made good on his promise, as a senior executive at Marsh brokerage and two American International Group employees pleaded guilty last week to criminal charges resulting from his investigation.
One defendant was identified as Josh Bewlay, who formerly worked at Marsh as managing director of the concerns New York excess casualty unit for global broking. The AIG employees who pleaded guilty were Carlos Coello and John Mohsboth from the excess casualty division of American Home Assurance Company.
AIG said Mr. Coello and Mr. Mohs were an underwriter and manager, respectively, at a subsidiary providing high-limit excess liability coverage, and were subordinates of two other AIG employees who pleaded guilty last October. All four AIG employees are on paid leave.
All three who entered pleas last week admitted to participating in a scheme that saw Marsh, the nations largest broker, submitting phony quotes to commercial insurance customers so that participating insurers could keep existing clients business without worrying about competition.
Mr. Spitzers office has charged that the brokerages bid-rigging activity was done for payoffs from the insurance companies in the form of volume-based contingency fees.
Mr. Bewlay, in a statement made with his plea, said it was "Marsh protocol" to prevent clients from learning how much placement money they were getting from carriers "in addition to any fee or commission paid." He said the protocol required "multiple layers of inquiry to discourage the client from obtaining an answer." When clients did get an answer, management service agreement revenuesbonus fees paid by carrierswere "significantly understated," said Mr. Bewlay.
Mr. Bewlay and Mr. Mohs pleaded guilty in Manhattans New York County Supreme Court to one felony count each of scheme to defraud, punishable by up to four years in prison. Mr. Coello pleaded guilty to a misdemeanor count of scheme to defraud, punishable by up to one year in jail. All three appeared before Justice James Yates, who deferred sentencingwhich he said would depend on their cooperation with prosecutors.
Mr. Spitzers office said the three are expected to testify in future cases, as are the six other insurance industry employees who have entered criminal pleas. Overall, there have been guilty pleas to criminal charges from four executives at AIG, two from Zurich American, two from Marsh, and one from ACE.
Mr. Spitzer thanked the New York State Insurance Department for its cooperation in the joint investigation, which is continuing. Last week, his office and the Securities and Exchange Commission subpoenaed AIG for information concerning the sale of nontraditional insurance productswhich, according to authorities, have been used in the past as devices to give a distorted picture of company finances. (See related story on this page.)
Reproduced from National Underwriter Edition, February 18, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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