New York Attorney General Eliot Spitzer announced the indictment today of eight Marsh Inc. insurance brokers on charges of bid rigging and defrauding clients.
All eight pleaded not guilty at their arraignment.
Mr. Spitzer's action came after reaching a civil settlement with Marsh parent Marsh & McLennan Companies and securing pleas from six other Marsh executives who pleaded guilty to felony and misdemeanor charges.
The 37-count indictment handed up today to New York County Supreme Court Judge James A. Yates accuses the eight former executives with scheming to defraud, restraint of trade and competition, and grand larceny.
Conviction under the felony charges, of grand larceny would expose the executives to a possible maximum sentence of 15 to 25-years in prison.
Charged in the indictment were, William Gilman, executive marketing director and managing director; Joseph Peiser, head of Global Broking Excess Casualty and managing director; Edward J. McNenney, Global Placement director and managing director; Greg J. Doherty, ACE local broking coordinator, team leader and senior vice president; Thomas T. Green Jr., senior vice president; Kathleen M. Drake, local broking coordinator, team leader and managing director; William L. McBurnie, coverage and carrier specialist and senior vice president, and Edward J. Keane Jr., assistant vice president.
Mr. Gilman was released on $100,000 bail. Mr. Peiser and Mr. McNenney were released on $75,000 bail; Mr. Doherty was released on $50,000 bail, and Mr. Green, Ms. Drake and Mr. McBurnie were released on $35,000 bail. Mr. Keane was released on his own recognizance.
According to an MMC spokesman, the eight executives all left their employment with Marsh in the last 11 months.
"These former Marsh managers are accused of colluding with leading insurance companies to arrange non-compete bids and conveying these bids to Marsh clients under false pretences," said Mr. Spitzer during a press conference announcing the indictment.
Today's charges were part of the attorney general's ongoing investigation of the insurance industry that began over a year ago and resulted in a civil suit against MMC and in the ouster of its chief executive, Jeffrey Greenberg.
It has also led to settlements, in which brokerages agreed to stop taking insurers' incentive payments or contingency fees, by not only MMC, but Aon, Willis, and Arthur J. Gallagher. The agreements have required the brokers to make restitution of over $1 billion to clients.
The indictment alleges that the eight, from November 1998 to September 2004, "colluded with executives at American International Group, Zurich American Insurance, ACE USA, Liberty International Insurance Company, and others to rig the market for excess casualty insurance," Mr. Spitzer's office said.
According to the indictment, the alleged scheme involved working with the insurers by determining who would win business, setting a target premium for the predetermined winner, and obtaining losing bids to make the process look genuine.
The scheme, Mr. Spitzer said, earned millions of dollars for both the carriers and Marsh.
"Not only was this wrong, but it was harmful to the economy," declared Mr. Spitzer. "It skewed the system and added to the already high cost of insurance. It subverted the fundamental principal of our economy, which is full, free and fair competition.
"There is simply no responsible argument for a system that rigs bids, stifles competition, and cheats customers," he added.
Some of the companies that were allegedly defrauded were State Farm Mutual Automobile Insurance Co.; Fortune Brands, Inc.; Vivendi Universal, S.A.; Intel Corporation; Fidelity National Financial, Inc.; Cisco Systems, Inc.; E & J Gallo Winery; Merle Norman Cosmetics, and Neiman Marcus Group, Inc.
Mr. Spitzer said that a total of 17 executives at five companies, including the six at Marsh, have so far pleaded guilty in the probe, and he said he expected more to come.
He said there will be additional individual actions and action against those carriers that were a part of the alleged scheme.
"The work in this area is not complete," said Mr. Spitzer. "As part of our ongoing investigation I am currently negotiating an end to such practices with several insurance entities."
Mr. Spitzer said that he is still pursuing a legal action against the life insurance broker, Universal Life Resources of San Diego.
Addressing those who would question the investigations he has undertaken, Mr. Spitzer said no one can dispute that there was massive fraud in the insurance and securities industries.
Concerning his investigation into American International Group's use of finite insurance transactions to improve financial statements, he said his office is seeking a resolution with the company.
He said the change in AIG leadership, which has included the departure of longtime chief executive officer Maurice Greenberg and other executives, combined with internal changes the company is making should lead to a resolution.
In a statement, MMC's President and Chief Executive Officer, Michael G. Cherkasky, emphasized that the latest criminal charges do not involve the firm and action against the company was halted with the settlement with the attorney general earlier this year.
"This indictment is about the past," said Mr. Cherkasky. "MMC today is focused on the future and is committed to excellence and the highest standards of professionalism and service."
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