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Marsh & McLennan Suspends Commissions At Center of Spitzer Probe

Oct 16, 2004 | AP

Marsh & McLennan Companies Inc. said Friday it was suspending its practice of using “market services agreements†with insurance carriers, which the New York attorney general has alleged were used to rig bids, cheating customers.

The agreements also known as contingent commissions or placement service agreements are at the center of a lawsuit announced Thursday by New York State Attorney General Eliot Spitzer accusing the New York-based firm of taking payoffs from insurance companies to steer corporate clients their way, rather than get those customers the best prices for corporate property and casualty policies.

The fees are over and above ordinary commissions, that brokers receive from insurance companies, mainly for steering volume business the insurer’s way.

Marsh & McLennan said the practice would be suspended at Marsh Inc., its risk and insurance services subsidiary.

“Today’s decision was made in light of the serious allegations and questions that have been raised about this long-standing industry practice,†the company said in a statement.

The statement also quoted chairman and chief executive Jeffrey W. Greenberg as saying: “We are greatly disturbed by the allegations of wrongdoing. We take them very seriously, and we are conducting a thorough investigation of these allegations.â€

He added: “As the facts are being reviewed, we believe it is in the best interest of our clients to suspend MSAs immediately.â€

The announcement came as shares in Marsh & McLennan, which fell 25 percent on Thursday, took another beating on Friday. Moody’s Investors Service put Marsh & McLennan’s debt rates on “outlook negative,†which often precedes a downgrade. And several brokerages, including Prudential Equities Group, lowered their ratings on the stock.

Marsh & McLennan shares fell $5.65, or more than 16 percent, on Friday to $29.20 on the New York Stock Exchange.

After the market closed on Friday, Marsh & McLennan announced that it was changing the management of its Marsh Inc. subsidiary, which has been the target of Spitzer’s probe.

The company said it was naming Michael G. Cherkasky chairman and chief executive officer of the subsidiary. He formerly was CEO of Marsh Kroll, Marsh & McLennan’s risk consulting subsidiary. Cherkasky, who previously served as chief of investigations for the New York County district attorney, replaces Ray J. Groves, who will become a senior adviser to Marsh Inc.

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