Spitzer Strikes Again

Eli

ot Spitzer received an anonymous letter last March that made for intriguing reading. The message suggested that the New York attorney general poke around Marsh & McLennan, the U.S.'s largest insurance broker and a firm Spitzer had tangled with in earlier financial- industry investigations. This time Spitzer asked Marsh about its practice of receiving "contingent commissions" from insurance companies, a controversial type of payment. That's when things started to get nasty. Spitzer says the more he probed, the more Marsh misled and "fed us the same foolishness they've been feeding the public over the years." He felt that Marsh CEO Jeffrey Greenberg, son of Maurice (Hank) Greenberg, the legendary boss of insurance giant American International Group (AIG), was stonewalling him. "I didn't see in their management a desire for reform," Spitzer says.

Marsh is paying dearly for not playing nice with Spitzer, whose anticorruption crusades in recent years have targeted top executives at Wall Street investment banks, mutual-fund companies, pharmaceutical firms and the New York Stock Exchange (N.Y.S.E.). In a civil suit filed in New York state court last week, Spitzer charged Marsh with a price-fixing and kickback scheme that inflated the cost of insurance for clients ranging from the Greenville County School District in South Carolina to companies like Fortune Brands. According to Spitzer, roughly $800 million of the $1.5 billion in net income Marsh earned last year came from those dicey commissions. The complaint says Marsh would sometimes promise business to one insurer but insist a competitor provide an inflated bid to create an illusion of competition — even demanding a "live body" at presentations to prospective clients.

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Marsh, whose stock sank 24% on the news, said it has been cooperating with Spitzer since spring but had not been made aware of the charges until last week, when it agreed to stop taking the payments and replaced the head of the business unit involved in the allegations. In a statement, Marsh said it was "committed to getting all the facts, determining any incidence of improper behavior, and dealing appropriately with any wrongdoing." Separately, the company's independent directors expressed confidence in the firm's leadership. Marsh declined to comment further to TIME. But the attorney general isn't in a forgiving mood. "I won't settle and leave in place a CEO whose behavior has been unhelpful, distortive and unresponsive," Spitzer told TIME.

Is the attorney general really trying to get Marsh's CEO fired? It wouldn't be his first use of prosecutorial leverage to push for dramatic change. When he went after the mutual-fund industry for late- trading violations, he used the opportunity to force funds to lower their fees, which critics decried as overreaching but investor-rights advocates praised. He's now locked in a legal battle with former N.Y.S.E. chief Richard Grasso, trying to force him to return millions of dollars in compensation.