Marsh & McLennan to pay $850m

The $850 million settlement Marsh & McLennan Cos. reached with New York Attorney General Eliot Spitzer yesterday will have a small but positive effect on its mutual-fund subsidiary, Putnam Investments, but is unlikely to resolve whether the Boston firm should split from its corporate parent, analysts said yesterday.

Marsh & McLennan's agreement to settle fraud charges closes one of the most explosive cases Spitzer has brought yet in his crusade against unsavory but longstanding practices in corporate America. It also removes a cloud that had been hanging over Putnam.

Spitzer had accused the New York company, which operates the nation's largest insurance brokerage, of anticompetitive practices, including fixing prices and rigging bids. The attorney general said Marsh & McLennan was steering business to insurance firms that paid it the largest commissions, and not necessarily those that offered the best prices on policies.

"This agreement culminates a dark period in this company's history," said Marsh & McLennan chief executive Michael G. Cherkasky, who also apologized for former employees' "unlawful" and "shameful" behavior.

Six insurance executives from Marsh & McLennan and two other companies have pleaded guilty to criminal charges in the case, and Spitzer said his office continues to investigate other individuals.

The $850 million will be used to compensate clients whose business led to Marsh & McLennan's receiving additional commission payments from insurers. The insurance broker said it hopes the settlement and payments will head off many of the class-action suits that have been filed against it, as well as induce other states to settle their separate investigations.

Spitzer praised Marsh & McLennan for embracing "restitution and reform as a way of making a clean break from the practices that misled and harmed its clients in the past."

Marsh & McLennan has since dropped the practice of receiving so-called contingent commissions from insurers and now provides customers with more detailed accounting of fees and other payments associated with their policies. It also replaced chief executive Jeffrey Greenberg.

The original charges in October resulted in an immediate hit to Marsh & McLennan's stock, causing it to drop by almost half. It has since recovered a portion of those losses, and yesterday gained $1.41, or 4.54 percent, to $32.50

Analysts had worried that Putnam suffered "guilt by association" with Marsh & McLennan just as it was cleaning its own house after being hit with fraud charges in October 2003 related to trading by several portfolio managers.

"Having Marsh & McLennan's problems hanging out hasn't made it any easier for Putnam," said Donald Sowa, whose East Providence, R.I., financial planning firm has $72 million invested at Putnam.

Marsh & McLennan's problems did help fuel discussions within Putnam and elsewhere in the industry about the fund company's breaking away from its parent and becoming independent in a possible management-led buyout or an investor-backed purchase.

Putnam executives have publicly said no such breakaway effort is underway. Chief executive Charles "Ed" Haldeman Jr. was traveling yesterday and unavailable for comment. Other Putnam employees have privately said the matter is under discussion, but in preliminary stages. Marsh & McLennan spokeswoman Barbara Perlmutter said the Spitzer settlement would have no effect on Putnam's operations or its status.

Andrew Caffrey can be reached at caffrey@globe.com.