With stock prices falling and a new chief executive at the helm, Marsh & McLennan Cos. may quickly settle a civil suit filed by New York Attorney General Eliot Spitzer, but it may cost $500 million or more.
According to the Wall Street Journal, which cited people familiar with the matter, the financial services company is eager to settle charges that its insurance brokerage was involved in bid-rigging for its client's insurance contracts. Stocks have dropped more than 37 percent since the suit was filed Oct. 14, and Michael G. Cherkasky, the new chief executive, has said a settlement with Spitzer is a priority.
Marsh & McLennan received commissions from major insurance companies that totaled about $1.8 billion over the past three years. The insurers paid these “contingent commissions” for steering business their way. Spitzer calls the fees “kickbacks” and said they prompted the insurance brokers to direct business to carriers that paid them the most in fees rather than to carriers that were giving clients the best rates on insurance. Any settlement may include disgorgement of some of the commissions.
Cherkasky, who was promoted to chief executive on Monday after Jeffrey Greenberg quit, said that the company will pay back any customers who were hurt by bid-rigging, Newsday reported.
"We're going to work with the attorney general to have an appropriate restitution program," he said. Cherkasky also told reporters that the company will disclose all commissions on all policies and that a compliance unit had been created.
Industry experts estimate that the total bill for the Marsh scandal could cost more than $1 billion. In addition to the settlement, it is expected that class-action suits and lawsuits by individuals will be filed.