MMC settles with Spitzer for US$850 million

Marsh & McLennan Cos. Inc. has settled the civil charges filed by New York Attorney General Eliot Spitzer for US$850 million. The charges were filed in October, 2004, alleging misconduct at MMC’s insurance brokerage unit, Marsh Inc., in the U.S. Spitzer’s suit alleged the company had engaged in bid-rigging, but also charged that conflict of interest existed in the broker’s acceptance of contingent commissions. Since the suit was filed, Marsh and other large brokers have stopped accepting these commissions, but industry groups continue to assert that they do not represent a conflict.In its statement, MMC says: “Under the terms of the agreement, the company neither admits nor denies the allegations in the complaint filed by the Attorney General and the amended citation issued by the Superintendent [of New York’s Dept. of Insurance].”However, in his response to the settlement, Spitzer says, “to its credit, Marsh is not disputing the problems identified in our original complaint. Instead, the company has embraced restitution and reform as a way of making a clean break from the practices that misled and harmed its clients in the past.” Marsh does acknowledge the impropriety of the bid-rigging incidents, for which certain Marsh employees have already plead guilty to criminal charges.Marsh stresses though that the $850 million is a fund to compensate clients potentially victimized by the brokerage’s practices, but not a fine or penalty. The fund will be paid in four annual installments starting June 1, 2005, and in addition to a US$232 million reserve set in third-quarter 2004, MMC will also take a US$618 million fourth-quarter charge to pay the fund.Along with the fund and discontinuing contingent commissions, Marsh has also agreed to provide clients with comprehensive disclosure of commissions, provide all quotes and terms received from insurers, adopt standards of conduct, and establish a board-level compliance committee. These changes apply to the U.S. brokerage business. The company has already appointed a chief compliance officer and reformed its board to include 10 independent directors plus new CEO Michael Cherkasky as the only management member.