MMC feels heat from Spitzer (again)
Following his targeting of uber broker Marsh for its use of PSAs (see Insider Week passim), New York attorney-general Eliot Spitzer has now set his sights on another Marsh & McLennan (MMC) subsidiary, namely Mercer Human Resource Consulting.
This time the MMC division is under the spotlight for its role in assessing the pay package of ex-NYSE chairman Richard Grasso.
On 24 May Spitzer’s office said Mercer had been asked to return $440,275 in fees it charged the NYSE. It said a spreadsheet prepared in 2002 by the MMC consultancy division contained "inaccuracies and omitted relevant information" about how much Grasso's retirement would cost the NYSE.
For its part, Mercer said it had paid the charge to avoid the cost of settling the issue in court.
The request to Mercer forms part of a wider investigation into Grasso’s retirement package, which at $188.5mn allegedly breaks rules governing compensation deals for not-for-profit organisations such as the NYSE.
Grasso resigned under pressure last September and is now being asked to return at least $100mn of his salary to the NYSE, according to a writ that was issued by Spitzer’s office on 24 May.
Spitzer’s latest sally marks the fourth time in the space of a year that MMC or one of its subsidiaries has taken flack from the New York attorney-general’s office. In 2003, the group’s mutual fund subsidiary Putnam, was placed under investigation for alleged market timing practices. Following Spitzer's uncovering of evidence of improper trading or market timing abuses at Putnam, investors withdrew more than $40bn of funds from the group.
In response, MMC replaced Putnam's long-standing chief executive Larry Lasser - the highest paid executive within the MMC empire - with Ed Haldeman, while sacking more than a dozen employees and promising to improve its practices.
But despite these initiatives, the asset manager remains in the regulatory spotlight. Earlier this month, Putnam revealed that it had paid $110mn in penalty fines to the Securities and Exchange Commission and the Commonwealth of Massachusetts relating to market timing proceedings.
Then, in April 2004, Spitzer announced an investigation into Placement Service Agreements or PSAs, commission payments made by insurers to brokers in exchange for guaranteeing certain levels of business.
More recently, Marsh revealed in a 10 May filing with the SEC that the Commission was investigating the pension consulting industry, including its consultancy arm Mercer, over practices with respect to advice regarding the selection of investment advisors to manage plan assets. According to MMC, Mercer Investment Consulting had received "requests for information for information from the SEC in connection with this examination and is fully cooperating".
As estimated in the May 2004 edition of Insider Week’s sister publication, The Insurance Insider, with all four of its operational arms under the spotlight, MMC could stand to lose more than $1.5bn as a result of serial investigator Spitzer’s efforts.