Spitzer prosecution of crooked insurance companies may be the tip of the iceberg. Connecticut is now looking into illegal payoffs and other efforts to rig rates. A justice department in a Kerry administration and an SEC head would have turned up this stuff much sooner. Another black eye for the Bushies:
Spitzer: Insurance scheme rigged bids for payoffs to brokers
By MICHAEL GORMLEY
Associated Press Writer
October 14, 2004
ALBANY, N.Y. -- New York Attorney General Eliot Spitzer sued insurance giant Marsh & McLennan and implicated American International Group and several others Thursday, alleging brokers have been taking payoffs from insurance companies to steer corporate clients their way rather than get the best prices for policies, as they are required.
Two AIG executives pleaded guilty to participating in the illegal conduct and are expected to testify in future cases, Spitzer said in announcing the broader investigation into whether brokers and companies violated fraud and antitrust laws and regulations.
The victims were mostly large corporations who were deceived into buying property and casualty coverage that may have cost more, but also included small and mid-size businesses, municipal governments, school districts and individuals, Spitzer said.
Spitzer announced the civil suit against Marsh & McLennan Cos. of New York, the nation's leading insurance brokerage firm, accusing it of steering clients to insurers for lucrative payoffs under long-standing agreement. The firm collected $800 million in so-called contingent commissions in 2003 alone, investigators said. Spitzer also accuses the company of soliciting rigged bids for insurance contracts. The practices go back to at least the 1990s, he said.
Some of the nation's largest insurance companies including New York-based American International Group Inc., ACE Insurance Co. of North America based in Philadelphia, The Hartford and Munich American Risk Partners are accused in Spitzer's suit of steering contracts and bid rigging. He said other insurance companies are being investigated.
Leaders of three of the companies have close family ties. Maurice Greenberg heads AIG, his son Jeffrey is chief executive officer of Marsh & McLennan and another son, Evan, is president and CEO of ACE and was formerly CEO of AIG from 1997-2000, according to Hoovers.com.
Shares in the companies fell sharply on the news, with Marsh losing more than 26 percent in afternoon trading.
Marsh issued a statement saying it is cooperating with Spitzer and was unaware of the charges until they were announced.
"We are committed to getting all the facts, determining any incidence of improper behavior, and dealing appropriately with any wrongdoing. This is our highest priority. Marsh is committed to serving its clients to the highest professional and ethical standards as demonstrated by its long history as the industry's leader."
Spitzer said that when he first contacted Marsh executives they said, "don't waste your time."
Two executives at AIG are the first charged in the probe. Karen Radke, 42, a senior vice president of an AIG division, and co-worker Jean-Baptist Tateossian pleaded guilty Thursday to felony charges of scheming to defraud in state Supreme Court in Manhattan. They face up to four years in prison, but their sentence will depend on how much more they cooperate, Spitzer said.
Afterward, Spitzer appeared angry at a New York City press conference, saying the scheme raises everyone's insurance premiums.
"The damages are vast, the corruption is remarkable," Spitzer said. "I don't know how far up we will establish criminal liability, but those who are implicated will face criminal charges."
Spitzer bases part of his insurance industry probe on internal e-mails and memos, in which he said insurance executives openly discussed actions that were aimed at maximizing Marsh's revenue and insurance companies' revenues, without regard to clients' interests.
One Marsh executive said in a memo that the amount of commissions would determine "who (we) are steering business to and who we are steering business from," according to Spitzer.
In some cases, Spitzer said, companies provided false and inflated quotes to help another in the scheme win a bid, with the idea that a subsequent bid would be steered to them.
A 2001 internal memo from a regional manager at Munich to a senior vice president said: "This idea of `throwing the quote' by quoting artificially high numbers in some predetermined arrangement for us to lose is repugnant to me, not so much because I hate to lose, but because it is basically dishonest. And I basically agree with the comments of others that it comes awfully close to collusion or price fixing."
The Hartford is cooperating fully, said company spokeswoman Cynthia Michener. "The Hartford does not condone bid rigging or any other illegal activity."
The other companies had no immediate comment.
Shares of Marsh fell $1.207 to $34.06 on the New York Stock Exchange. AIG shares fell $7.31, or nearly 11 percent, to $59.68; ACE shares lost $4.46, or 11 percent, to $35.85; Hartford shares fell $3.91, or more than 6 percent, to $58.27, all on the NYSE. Munich is a subsidiary of Germany's Munich Re and is not publicly traded in the United States; the news was released after trading in Germany had ended.
In recent years, Spitzer uncovered conflicts of interest on Wall Street and improper trading in mutual funds that hurt average investors. Spitzer secured more than $1 billion in settlements from Wall Street firms and mandated reforms to end conflicts of interest in which stock analysts colored their ratings of stocks to land lucrative investment banking clients.
Spitzer broke open the mutual fund scandal in September 2003.
In the past 12 months, several major fund complexes _ including Janus, Alliance Capital Management and Bank of America Corp. _ have paid hundreds of millions of dollars to settle improper trading charges brought by regulators. Fund executives, managers and traders have also been accused of wrongdoing.
"It makes one wonder whether executives at some of these (insurance) companies have learned anything," Spitzer said in an interview. "Where is the ethical compass of this industry?" |
