N.Y. AG Spitzer Indicts Former Marsh Execs for Roles in Bid Rigging, Fraud

New York Attorney General Eliot Spitzer and Insurance Superintendent Howard Mills on Thursday announced the indictment of eight former executives of insurance brokerage giant Marsh Inc. for their roles in a bid rigging scheme that officials maintain defrauded clients of millions of dollars.

The former executives are accused of colluding with executives at leading insurance companies to arrange noncompetitive bids and conveying these bids to Marsh clients under false pretenses.

The indictments come after 17 individuals at five companies, including eight former Marsh employees, previously pleaded guilty to criminal charges in the ongoing insurance industry investigation that began a year ago.

“These indictments are part of a continuing effort to hold individuals accountable for bid rigging and other illegal activities that defrauded insurance clients,” Spitzer said.

Mills said that his department would “continue to investigate with the Attorney General’s office allegations of illegal behavior that prevent consumers from getting the best insurance products at the best price.”

The indictment charges that from November 1998 to September 2004, the defendants colluded with executives at American International Group, Zurich American Insurance Company, ACE USA, Liberty International Insurance Company and other companies to rig the market for excess casualty insurance.

According to the indictment, defendants and other Marsh employees told their excess casualty clients that they obtained bids for their business from insurance companies in an open and competitive bidding process. In fact, the indictment maintains, defendants had rigged the process in the following ways: First, before any bids were submitted, the defendants determined which insurance company would win the business. Second, they set a “target” for the winner to submit as its bid. Third, they obtained losing bids, which they called “B quotes,” from other participating insurance companies.

By misleading customers into believing that the customers’ interests came first, the conspirators fraudulently obtained millions of dollars in commissions and fees for Marsh and millions of dollars in premiums for the insurance companies, according to Spitzer’s charges. The victim companies ranged from high technology firms to a fruit cannery to a cosmetics manufacturer.

The indictment charges the following individuals with Scheme to Defraud in the First Degree, an E Felony; Combination in Restraint of Trade and Competition, an E felony; and various counts of Grand Larceny in the First, Second and Third Degrees, respectively B, C and D felonies:

* 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;
* Thomas T. Green, Jr., senior vice president; and
* Greg J. Doherty, Marsh’s ACE Local Broking coordinator team leader and senior vice president. (Editor’s Note: In previous reports, Doherty was erroneously identified as an employee of ACE USA.)

The indictment charges the following individuals with Scheme to Defraud in the First Degree; Combination in Restraint of Trade and Competition; and various counts of Grand Larceny in the Second Degree:

* Kathleen M. Drake, Local Broking coordinator team leader and managing director;
* William L. McBurnie, Coverage and Carrier specialist and senior vice president;
* Edward J. Keane, Jr., assistant vice president.

The defendants are to be arraigned Thursday before the Hon. James A. Yates in New York County Supreme Court.

If convicted of the top count with which they are charged, Grand Larceny in the First Degree, defendants Gilman, Peiser, McNenny, Doherty and Green face a minimum of one to three years and up to twenty-five years in state prison. The top count for the remaining defendants, Grand Larceny in the Second Degree, carries a maximum term of 15 years.

The indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty.

Marsh itself faces no criminal sanctions. After the filing of a civil lawsuit in 2004, the company settled a civil case in January with the Attorney General, agreeing to replace top management, apologize for “unlawful” and “shameful” business practices, refuse contingent commissions, adopt additional reforms aimed at improving transparency and service for insurance customers, and set up an $850 million restitution fund for policyholders. At the time, both Attorney General Spitzer and Acting Superintendent Mills praised Marsh for embracing reform and adopting model business practices.

Agreements have not yet been reached with ACE, AIG, Zurich or Liberty.

In commenting on the indictments, Michael G. Cherkasky, president and chief executive officer of Marsh & McLennan Companies, Inc., stressed that they were not against the company. “The criminal charges announced today are not against MMC, but against eight former employees who worked in the Excess Casualty division of Marsh’s former Global Placement department. They stem from the conduct that the Attorney General outlined in his civil complaint against MMC last October. MMC and Marsh settled all charges against our companies by the New York Attorney General and Superintendent of Insurance relating to these matters last January,” Cherkasky said.

“This indictment is about the past. MMC today is focused on the future and is committed to excellence and the highest standards of professionalism and service,” Cherkasky added.

Thursday’s indictment represents the most recent development in Spitzer’s year-old joint investigation of the insurance industry with the Insurance Department.

In addition to the Marsh settlement, agreements have been reached with the Aon Corporation and Willis North America which will respectively result in restitution to policyholders of $190 million and $150 million along with reforms adopted by Marsh. Other areas of the investigation’s focus include so-called “finite insurance” and insurance industry accounting irregularities.