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Insurance Executives Indicted for Bid Rigging, Fraud

September 15, 2005
A New York grand jury has indicted eight former executives of the nation's leading insurance brokerage firm for their alleged roles in a massive bid rigging scheme that defrauded clients of millions of dollars.

Insurance Probe • Connecticut Files Antitrust Suit Against Reinsurance Broker • The Hartford Settles Illegal Trading Charges • Zurich American Implements Reforms, Pays Consumers Millions • Liberty Mutual Sued in Bid-Rigging Investigation • Insurance Executives Indicted for Bid Rigging, Fraud • Aon Settles For $190 Million • Marsh & McLennan to Pay $850 Million • Universal Life Settles with California • Florida Subpoenas Insurers • Zurich American Insurance Executives Plead Guilty • NY Insurance Broker Charged With Fraud, Antitrust Violations • Fremont Investment Advisors Settle Market Timing Case • Florida Opens Insurance Probe • Oregon Joins Insurance Probe • California Joins Insurance Crackdown • Widespread Insurance Corruption, NY Charges

The former managers of Marsh Inc., a subsidiary of Marsh and McLennan, Inc., are accused of colluding with executives at leading insurance companies to arrange noncompetitive bids and conveying these bids to Marsh clients under false pretenses, New York Attorney General Eliot Spitzer and State Insurance Superintendent Howard Mills said.

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.

Today's indictment charges that from November 1998 to September 2004, the defendants colluded with executives at American International Group "AIG", Zurich American Insurance Company "Zurich", ACE USA "ACE", Liberty International Insurance Company "Liberty" 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, 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. The victim companies ranged from high technology firms to a fruit cannery to a cosmetics manufacturer.

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, agreed not to accept contingent commissions, adopted additional reforms aimed at improving transparency and service for insurance customers and set up an $850 million restitution fund for policyholders.

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

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;
• Greg J. Doherty, ACE Local Broking Coordinator Team Leader and Senior Vice President;
and • Thomas T. Green, Jr., Senior Vice President.

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.

If convicted of the top count with which they are charged, Grand Larceny in the First Degree, defendants Gilman, Peiser, McNenney, 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.

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 $50 million along with reforms adopted by Marsh. Other areas of the investigation’s focus include so-called “finite insurance” and insurance industry accounting irregularities.

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