NEW YORK — Launching a new assault on the financial services industry, New York Atty. Gen. Eliot Spitzer filed a lawsuit Thursday claiming that the world's largest insurance broker, Marsh & McLennan Cos., conspired to cheat business clients out of hundreds of millions of dollars.
The suit said that Marsh, which was hired to find the best deals for its mostly corporate customers, instead steered clients to major insurance companies that made backdoor payments to the broker.
As part of the scheme, Marsh had insurers fabricate bids to deceive clients into thinking they were getting the lowest-priced policies, Spitzer alleged.
The practices, he said, hurt businesses of all sizes, as well as local governments, school districts and some individuals.
"It is disappointing for what it once again reveals about the craven disregard for ethics and the law by some of our largest corporations," the attorney general said at a Manhattan news conference.
In connection with the probe, two executives of insurance behemoth American International Group Inc. pleaded guilty in New York state court Thursday to one felony count of scheming to defraud. Both are cooperating in the investigation.
Marsh and other companies named in the probe said they were reviewing the allegations. Marsh, which boasts about 60,000 employees and annual revenue of more than $11 billion, said it was "committed to serving its clients to the highest professional and ethical standards."
Critics paint Spitzer as a political grandstander, courting media attention to snare headlines as he prepares to run for governor of New York. But others say he is a much-needed champion of the little guy and note that his earlier investigations of Wall Street brokerages and the mutual fund industry have led to huge settlements and far-reaching reforms.
News of the latest investigation sent shock waves across Wall Street. Shares in Marsh & McLennan plunged 25% to $34.85, and AIG shares tumbled 10% to $60, both on the New York Stock Exchange. Other insurance companies also saw their stock prices sink.
Though charges were filed only against Marsh, Spitzer said other insurance companies remained under investigation.
Improper practices appear to be rife throughout the industry, he said, and the inquiry is expanding into lines of insurance that are sold to individuals.
