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Fraud trial opens for ex-Marsh execs

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Fraud trial opens for ex-Marsh execs

NEW YORK--The criminal trial of two former Marsh Inc. executives got underway last week with prosecutors charging that the men used a bid-rigging scheme to "defraud and cheat" Marsh clients.

Prosecutors contend the duo--William Gilman, a managing director and former executive marketing director in Marsh Inc.'s Global Broking unit, and Edward J. McNenney, a former managing director and global placement director with broking responsibility for handling New York-based American International Group Inc.--and others misled the broker's excess casualty clients by steering business to selected insurers and preventing a competitive bidding process.

But lawyers for the defendants argued that Messrs. Gilman and McNenney solely acted in the interest of clients, fighting to pry away AIG's grip on the market and to secure the best insurance coverage possible.

Messrs. Gilman and McNenney are the first of seven Marsh executives who will face trial before New York County Supreme Court Judge James A. Yates in the coming months.

They, along with a group of other former Marsh Inc. executives, in September 2005 were indicted on 37 counts of bid-rigging and fraud by then-New York Attorney General Eliot Spitzer and former State Insurance Superintendent Howard Mills.

That indictment accused the executives of colluding with employees at various insurance carriers--including AIG, ACE USA, Liberty International Insurance Co. and Zurich American Insurance Co.--to rig the market for excess casualty insurance between November 1998 and September 2004.

The defendants and others involved in the alleged scheme would predetermine which carriers won business, set "targets" for the predetermined winner to submit as a bid, and obtain "losing bids" from employees at the accomplice companies, the indictment charged.

While seven of the former Marsh executives indicted--including Messrs. Gilman and McNenney--pleaded not guilty to the charges, one out of the group pleaded guilty (see box).

Prosecutors have since dismissed 13 larceny counts against Messrs. Gilman and McNenney. They still face charges alleging scheme to defraud in the first degree, violation of the New York Donnelly Act--the state's antitrust law--and various larceny charges. If convicted, both face up to 25 years in prison.

Marsh itself has not faced any criminal sanctions over the scandal, and in January 2005 paid $850 million restitution for policyholders to end regulators' bid-rigging and fraud probes.

In opening arguments last week, Assistant Attorney General Nina Sas called Mr. Gilman "the architect and driving force behind the price-fixing, bid-rigging and customer allocation scheme that overran the excess casualty insurance industry from 1998 to 2004."

Mr. McNenney, meanwhile, was one of Mr. Gilman's "proteges," and "the enforcer of Mr. Gilman's scheme," she said, making sure that Mr. Gilman's "philosophy of controlling the insurance carriers was carried out and implemented on a daily basis," Ms. Sas said.

Together, they--along with other co-defendants and accomplices--"pushed Marsh Global Broking Excess Casualty insurance brokers to defraud and cheat their clients," she said.

Lawyers for the defendants--Robert Cleary of Proskauer Rose L.L.P and Stephen Neal of Cooley Godward Kronish L.L.P.--meanwhile, argued in their opening statements that it was largely AIG's dominance of the excess casualty market and use of its leverage to raise prices and restrict coverage that presented a challenge to Marsh and its brokers. Messrs. Gilman and McNenney consistently were forced to battle AIG aggressively to act in favor of clients, the lawyers said.

"The mission at Marsh and for Bill Gilman in particular was to pry loose the vice-like grip AIG had over the market in an effort to get the best possible coverage," said Mr. Cleary, attorney for Mr. Gilman. Over the years, Mr. Gilman had to adopt "a bare knuckles, in your face approach to pushing around AIG and other insurance companies."

"The prosecutors have a heavy burden trying to prove Ed McNenney guilty beyond a reasonable doubt," said Mr. McNenney's attorney, Mr. Neal. "They cannot meet that burden."

An AIG spokesman declined to comment. AIG in February 2006 agreed to pay $1.64 billion to settle bid-rigging and other charges.

The prosecution said it will call as witness many corporate risk managers and others--from Cisco, IBM, Fortune Brands, Vivendi and other companies--who will testify that "they would never have purchased their excess casualty insurance through Marsh had they known" Marsh was seeking losing quotes "and tricking them into believing there had been a competitive bidding process."

Prosecutors also plan to call as witness former Marsh executives, many of whom have pleaded guilty to criminal charges in connection with regulators' fraud bid-rigging probe, and agreed to cooperate with the New York attorney general's office. Underwriters from several insurance carriers will also testify, the prosecution said.

Last week, Kathryn Winter, a former managing director and broker in the excess casualty global broking unit, was one of the first witnesses. In Feb. 2005, Ms. Winter pleaded guilty before Judge Yates to scheme to defraud in the first degree.

Jane Brooks, former director of risk management for E&J Gallo Winery in Modesto, Calif., was also called to the stand.

The trial continues this week.