Marsh & McLennan Settles Shareholder Suit For $400M

By Jessica Dye

Law360, New York (November 13, 2009) -- Major insurance brokerage and consulting firm March & McLennan Cos. Inc. announced Friday that it will pay $400 million to settle a shareholder class action seeking redress for stock losses allegedly caused by the company's failure to disclose knowledge of a bid-rigging scheme.

Filed in the U.S. District Court for the Southern District of New York on behalf of several Ohio and New Jersey state pension funds, the suit accused March & McLennan and insurance brokerage subsidiary Marsh Inc., as well as former Marsh executives Jeffrey Greenberg and Roger Egan, of failing to reveal publicly that the company's bottom line was padded by kickbacks generated through an alleged scheme to steer business to certain insurance carriers.

The settlement — negotiated on behalf of the state funds by Ohio Attorney General Richard Cordray and New Jersey Attorney General Anne Milgram and mediated by retired Judge Daniel Weinstein — received preliminary approval from the district court on Tuesday, the state attorneys general revealed Friday.

According to Cordray, the MMC settlement is one of the 25 largest recoveries in American history for shareholders bringing this kind of suit.

“Through violations of securities laws, Marsh harmed the investments and retirement benefits of workers in Ohio and across the country,” Cordray said in a statement. “This massive fraud was built on unethical and illegal practices and violated the best interests of clients and shareholders alike.”

Without admitting or denying any wrongdoing, MMC will pay $400 million to resolve all claims brought against the defendants. For settlement purposes, the preliminary order would certify a class of all individuals who bought or held MMC securities between Oct. 14, 1999, and Oct. 13, 2004, who suffered losses when the company's stock price plummeted after the alleged scheme was revealed.

The suit accused MMC and certain directors of covering up information about an alleged internal scheme in its insurance division, through which plaintiffs claim the company generated significant earnings from illegal, anti-competitive arrangements to steer business to certain insurance carriers in exchange for “contingent commission” kickbacks.

Lead plaintiffs accused the company of reaping substantial profits from the scheme while taking steps to cover up the nature of contingent commission revenue in public filings and communications.

In October 2004, an investigation turned up evidence of an industrywide price-fixing and bid-manipulation scheme, the suit stated. Within days, MMC lost $9 billion in market capitalization as its stock prices plummeted, resulting in major losses to shareholders.

The complaint was filed on Oct. 15, 2004. The Public Employees Retirement System of Ohio, State Teachers Retirement System of Ohio, the Ohio Bureau of Workers' Compensation and New Jersey Department of Treasury's Division of Investments were appointed lead plaintiffs.

Class members have until Dec. 14 to opt out of the settlement, and a final approval hearing has been set for Dec. 23. While the amount of shareholder recovery and number of claims is still unknown, Milgram estimated the average recovery would be 77 cents per share.

MMC, one of the world's largest providers of insurance brokerage and consulting services, announced earlier this week that it would pay $35 million to settle a separate Employee Retirement Income Security Act class action alleging it failed to warn participants in its employee investment plan that its stock price had been inflated by the contingent commission revenue.

“After more than five years of litigation, MMC believes these settlements to be in the best interest of the company,” MMC said in a statement. “While the company continues to deny all of the claims in these lawsuits, the resolution of these matters puts the litigation arising from the vents of 2004 largely behind us and reduces the company's ongoing legal costs.”

Lead plaintiffs were represented by Bernstein Liebhard LLP and Grant & Eisenhofer PA.

MMC was represented by Gibson Dunn & Crutcher LLP.

Greenberg was represented by Allen & Overy LLP.

Egan was represented by Morvillo Abramowitz Grand Iason Anello & Bohrer PC.

The case is In re: Marsh & McLennan Cos. Inc. Securities Litigation, case number 04-cv-08144, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Melissa Lipman