NEW YORK – A former senior executive at Marsh & McLennan Companies Inc. (MMC) and two American International Group Inc. (AIG) employees pleaded guilty Tuesday to criminal charges in the state's probe of bid-rigging and price-fixing in the insurance industry.
Joshua Bewlay, 39, of Tuxedo Park, N.Y., a former managing director at Marsh; John Mohs, 36, of Manhattan, a vice president in a unit of AIG, and Carlos Coello, 33, of Teaneck, N.J., an AIG underwriter, entered their pleas Tuesday in Manhattan's state Supreme Court.
All three defendants admitted to participating in a scheme that allowed Marsh, the nation's largest insurance broker, to protect incumbent insurance carriers when their business was up for renewal.
Bewlay, fired last week, and Mohs, currently on leave, pleaded guilty to one felony count each of scheme to defraud and face up to four years in prison if convicted. Coello, also on leave, pleaded guilty to a misdemeanor count of scheme to defraud, punishable by up to one year in jail.
New York Attorney General Eliot Spitzer (search) said the defendants are expected to testify in future cases, as are the six other insurance industry employees who have already entered guilty pleas.
Bewlay told the court the practice of obtaining losing quotes — known as "B quotes" — to steer business was widespread in the industry and in the company, not just the effort of a few employees.
"I personally solicited losing quotes on a number of occasions," Bewlay said in his plea statement. "Unknown to Marsh's clients, I, along with others at Marsh and others at various insurance companies who participated in this conduct, shared the common purpose of insuring that a particular carrier bound the client's excess casualty insurance policy; `B quotes' were solicited and obtained related to and as part of this common scheme, and, the scheme caused more than one Marsh client to obtain more expensive and/or less favorable insurance coverage."
Spitzer sued Marsh in October and also implicated AIG and several other major insurance companies. He said brokers throughout the industry, rather than get the best prices for policies as they are required to do, took payoffs from insurance companies to steer corporate clients their way.
"The plea agreements announced today reflect information provided by AIG as part of its ongoing cooperation with the New York attorney general's investigation," the company said in a statement Monday. "AIG takes this matter very seriously and deeply regrets that some of its employees were involved. AIG will continue to cooperate with the attorney general's investigation and with other investigations."
In court Tuesday, Bewlay referred to "Marsh protocol designed to prevent Marsh's clients from obtaining accurate information ... the protocol required multiple layers of inquiry to discourage the client from obtaining the answer."
Justice James Yates accepted the pleas but deferred sentencing, saying he will impose punishment — depending on each defendant's level of cooperation — when Spitzer's investigation is completed.
Jeffrey Licthman, lawyer for Mohs, said his client "is accepting full responsibility for his conduct and doing all he can to right this wrong."
With Tuesday's cases, Spitzer's office has now obtained nine guilty pleas from executives at four different companies. Previously, two executives at AIG, two from Zurich American, one from Marsh and one from ACE pleaded guilty to criminal charges.
In January, Marsh executives insisted the wrongdoing was by a few individuals who violated company policy. The company agreed to pay $850 million in restitution to end Spitzer's investigation into bid rigging and price fixing.
The company, which is based in New York, had hoped the settlement would end similar investigations by other states, including Connecticut, and private lawsuits. Marsh also issued and apology and promised to adopt reforms.
The agreements — also known as contingent commissions or placement service agreements — are above ordinary commissions which brokers legally receive from insurance companies. That practice raised every policy holder's premiums, 1er said.
After the suit was filed, Marsh ousted Chairman and Chief Executive Officer Jeffrey Greenberg (search) and named Michael G. Cherkasky, 54, as president and CEO. Cherkasky had been head of Marsh Inc., the company's insurance brokerage unit.
Earlier in his career, Cherkasky spent 16 years in the criminal justice system, some of them as Spitzer's boss in the New York district attorney's office.
In late October, Marsh announced it would permanently stop receiving contingency compensation from insurance companies, and several property and casualty insurance companies announced they would no longer pay such fees.
Spitzer had claimed Marsh collected $800 million in contingent commissions in 2003 alone. Spitzer also accused the company of soliciting rigged bids for insurance contracts. The practices go back to at least the 1990s, he said.
This is the latest industry settlement for Spitzer. In recent years, he uncovered conflicts of interest on Wall Street and improper trading in mutual funds.
Shares of Marsh & McLennan rose 39 cents to close at $32.69 in trading on the New York Stock Exchange, where AIG shares gained 36 cents to close at $71.85, amid a broad rise in blue chip stocks.