Trial Starts for Two Former Marsh Execs Accused of Bid Rigging

April 11, 2007

Two former executives of Marsh & McLennan Cos. Inc., the largest insurance brokerage in the world, went on trial this week for what prosecutors said were their roles in a lucrative bid rigging scheme.

William Gilman, who was executive marketing director, and Edward J. McNenney, ex-global placement director, are charged in Manhattan’s state Supreme Court with scheme to defraud, first- and second-degree grand larceny and restraint of trade.

The former Marsh executives, being tried without a jury before Justice James Yates, have pleaded not guilty. If the judge convicts them, they each would face up to 25 years in prison.

Their lawyers say the state attorney general’s office did not like the way their clients worked but the defendants did nothing criminal.

The prosecution says the defendants and others conspired with brokers and other insurance companies to arrange noncompetitive bids for New York-based Marsh & McLennan’s corporate customers from November 1998 to September 2004.

The customers, large companies with big potential risk that bought excess casualty insurance for catastrophic situations such as the Exxon Valdez oil spill, were cheated by this arrangement, the prosecution says.

“This case is about greedy and arrogant people,” said Assistant Attorney General Nina Sas. “Instead of letting market forces work, they became the market forces” by controlling how much was bid to get business and by whom it was bid.

Customers of Marsh included Vivendi, Cisco Systems, IBM, State Farm insurance and Merle Norman cosmetics.

Sas said in opening remarks that the former executives set a target money figure for the predetermined winner to bid after getting deliberately losing bids from other participating companies to mislead customers.

To maximize profits, Sas said, Gilman protected chosen insurance carriers from competition, guaranteed them a profit and charged them a contingency fee based on how much business the carriers did because of Marsh.

Sas said prosecutors will call as witnesses former Marsh employees who have already pleaded guilty to crimes related to bid rigging. She said other witnesses, representing Marsh’s clients, will testify they would not have bought the excess casualty coverage if they knew the bidding was rigged.

Gilman’s lawyer, Robert Cleary, and McNenney’s lawyer, Stephen Neal, acknowledged that their clients’ customer and insurance carrier matching was not pure “unguided competition” but said it was the method that worked best for all.

They said some carriers are not suited to, nor are they interested in, insuring specific kinds of businesses. They also said Marsh helped companies keep a client’s business because of benefits to both: There are no gaps in coverage, and there is more stability in premium costs.

In January 2005, nine months before Gilman and McNenney were indicted, Marsh & McLennan agreed to pay $850 million in restitution to end then-Attorney General Eliot Spitzer’s investigation into bid rigging and price fixing.

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