NEW YORK (Reuters) – Insurance broker Marsh & McLennan Companies Inc.
(NYSE: MMC – news) said on Thursday that it would sell its troubled money
manager, Putnam Investments, to a unit of Canada’s Power Financial Corp.
(Toronto: PWF.TO – news). for $3.9 billion.
The sale price was in line with recent press reports, but toward the lower end of
initial estimates of how much the scandal-ridden asset manager would fetch when
Marsh & McLennan said in September that it was considering a sale.
Montreal-based Power Financial, which controls insurer Great-West Lifeco Inc.
(Toronto: GWO.TO – news) and IGM Financial Inc. (Toronto: IGM.TO – news),
Canada’s largest mutual fund company, had said last month that it was in talks to
Analysts have said Power Financial would gain a key foothold in the U.S. money
management business. For Marsh, the sale followed longtime pressure from
investors to shed the underperforming unit.
Putnam has suffered from rising redemptions andpoor performance by its top
funds, that raised doubts among some analysts whether a deal would go through at
Both boards have approved the transaction, and they expect it to close in the
middle of this year.
Putnam is one of Marsh & McLennan’sfour major divisions. The others are the
Marsh insurance brokerage unit, risk consulting unit Kroll Inc. and Mercer, which
handles human resources and provides financial services to companies.
Putnam’s Boston neighbor, MFS Investment Management, was also put up for sale
in September but its Canadian parent, Sun Life Financial Inc. (Toronto: SLF.TO –
news), said just a month later that it had decided not to sell the unit after a
Boston-based Financial Research Corp (FRC) said that Putnam again saw the
heaviest redemptions in long-term stock and bond mutual funds, losing $1 billion
in November. It lost $13.8 billion in assets in 2006 till end-November, FRC
Power Financial said its Great-West Lifeco Inc. unit would own the asset manager.
Officers alleged to have partaken in a $4M fraud scheme;
company will not face SEC action.
WASHINGTON (Reuters) – Six former officers of Putnam Fiduciary Trust, a unit
of mutual funds group Putnam Investments, have been charged by regulators over
an alleged $4 millionfraud scheme and attempted cover-up beginning in 2001,
officials said Tuesday.
But the Securities and Exchange Commission said it would not bring an
enforcement action against the company itself “because of its swift, extensive and
extraordinary cooperation in the commission’s investigation.”
Putnam Fiduciary is a Boston-based transfer agent owned by Putnam Investments,
the mutual funds family controlled by financial group Marsh & McLennan.
The SEC charges versus the ex-officers come as Putnam Investments, the nation’s
tenth-largest mutual fund family, is recovering from trading scandals beginning in
fall 2003 that hurt it and others in the $8.8 trillion mutual fund industry.
Putnam Investments Chief Executive Ed Haldeman said that when the problem at
Putnam Fiduciary came to light in 2004, the parent company quickly reported it to
regulators, auditors and trustees; repaid harmed clients roughly $4 million;
terminated employees involved and disclosed the problem to clients.
In addition, he said in a statement, Putnam investigated on its own and made
The SEC alleged in U.S. District Court in Boston that Putnam Fiduciary in January
2001 was a day late in investing certain assets of health care services and products
group Cardinal Health Inc., which was at the time a defined- contribution plan
client of the company.
The delay cost Cardinal’s defined-contribution plan to miss out on nearly $4 million
in market gains, the SEC said.
“Rather than inform Cardinal Health of the one-day delay or compensate their
client for the missed trading gain, the defendants decided to improperly shift
approximately $3 million of the costs of the delay to shareholders of certain
Putnam mutual funds through deception, illegal trade reversals, and accounting
machinations,” the SEC alleged in court.
The SEC said it charged the following former Putnam Fiduciary employees:
operations chief Karnig Durgarian, global operations services head Donald
McCracken, defined contribution servicing director Virginia Papa, managing
directors Sandra Childs and Kevin Crain, and vice-president Ronald Hogan.
The SEC also charged that the defendants improperly allowed Cardinal’s plan to
bear about $1 million of the loss without disclosing this to Cardinal, and that
Durgarian, Papa, Childs, and Crain tried to cover up the wrongful conduct.
“Ms. Papa has not misled any client, manipulated any record, or covered up anything.
She looks forward to vindication in court,” said Michael Connolly, Papa’s attorney.
Gary Matsko, McCracken’s attorney, said his client has cooperated fully with the
SEC. “He intends to defend the charges. He maintains he hasn’t done anything
wrong,” he said.
Anthony Mirenda, Crain’s attorney, said his client “will fight this to clear his name
because he did not participate in any fraud.” Mirenda said Crain drew the attention
of internal auditors to the problem and cooperated with authorities.
Attorneys for Durgarian and Hogan could not be reached for comment. John Sten,
attorney for Childs, declined to comment.
In not charging Putnam Fiduciary, the SEC said it took into account the company’s
prompt self-reporting, its internal probe and other steps like those outlined in the
precedent-setting 2001 Seaboard case. That decision set standards for how to
cooperate with the SEC and held out the possibility of leniency for companies that
meet the standards.
In the Putnam Fiduciary case, “the commission has sent a strong signal that should
make it easier for a company to decide whether to self-report misconduct,” said
SEC Deputy Enforcement Director Walter Ricciardi in an interview.
November 20, 2003
The guy who blew the whistle on Putnam
By Jayne O’Donnell, USA Today
WEYMOUTH, Mass – When he started working at Putnam Investment’s Quincy,
Mass. call center in March 2000, Peter Scannell had only a layman’s knowledge of
how a mutual fund company works.
But he knew from his days working at a casino in Lake Tahoe how to tell the good
guys from the bad. And it wasn’t long before Scannell decided the good guys
weren’t necessarily the ones who signed his checks.
Scannell caught onto efforts by outside investors, first from an electrical trades
union and later a boilermakers union, to make rapid trades in and out of Putnam
(Parent MMC) funds – a practice known as market timing.
Alarmed, Scannell blew the whistle to the Securities and Exchange Commission,
which didn’t act, and then to Massachusetts regulators, who did. What they heard
led to state civil fraud charges againstPutnam, the resignation of its CEO,
Lawrence Lasser, and the withdrawal of more than $20 billion from its funds.
It also helped train a spotlight on market timing, which has ensnared eight of the
USA’s mutual fund companies in probes and charges.
“This would not have started without him,” says Matthew Nestor, Massachusetts’
director of securities. “We owe him a debt of gratitude.”
In five hours of interviews over two days, Scannell, 47, said he turned in the big
guys to help the little guys everywhere. Mutual fund and retirement plan
participants who watched their holdings plummet while others got rich. In
retaliation, he says, he was attacked by a brick-wielding assailant allegedly wearing
a boilermakers union sweatshirt and is being trailed almost constantly….
The Massachusetts U.S. Attorney’s office is investigating possible criminal
securities fraud violations at Putnam, relating to market-timed trades by its
managers. Scannell met for two hours Tuesday with the office. The FBI is also
investigating, say two people involved in the matter….
Last Jan. 30, Scannell says he told his bosses he would no longer accept transfers
from known market timers. The next day, he took home the information he had
compiled because he planned to alert securities regulators. “I drove home looking
over my shoulder,” Scannell wrote in the report….
In three unrelated cases, federal regulators fined Citigroup Inc. and Putnam
Investments $20 million and $40 million respectively and a smaller brokerage
firm $100,000 to resolve allegations that they concealed from customers the
fact that brokers were paid to recommend certain mutual funds, creating a
conflict of interest.
The Securities and Exchange Commission announced the separate settlements
Wednesday with Citigroup, the biggest U.S. financial institution; Putman, the
seventh-largest mutual fund company, and brokerage Capital Analysts Inc.
Citigroup, Capital Analysts and Putnam, a unit of Marsh & McLennan Cos.,
neither admitted nor denied wrongdoing as part of the agreements….
November 1, 2004
The Secret World Of Marsh Mac
By Marcia Vickers, Business Week
CEO Jeff Greenberg presides over the arrogant and tight-lipped culture of Marsh
& McLennan, where conflicts of interest abound. There’s more trouble coming for
the world’s largest insurance broker.
When Jeffrey W. Greenberg took the helm of notoriously secretive Marsh &
McLennan Cos. (MMC ), a $12 billion financial-services company, on Nov. 18, 1999,
analysts were happily buzzing that Greenberg was a gregarious, outgoing executive.
The word on Wall Street was that he would raise the profile of Marsh Mac with
more public appearances and open communication than his tightlipped predecessor,
A.J.C. “Ian” Smith.
They couldn’t have been more wrong. In the past four years, Greenberg sightings
have been scarce. The company, true to its secretive history, became even more
cloistered. But on Oct. 14, Marsh & McLennan was forced into a harsh public
spotlight when New York Attorney General Eliot Spitzer charged its insurance
brokerage with fraud. In a civil complaint filed in New York State Supreme Court,
Spitzer alleges that the company engaged in bid-rigging, price-fixing, and accepting
payoffs from insurance companies.
Marsh & McLennan, the world’s largest insurance broker, is paid millions annually to
manage clients’ risks and crises. Now it’s having epic problems of the same nature
In a three-month investigation, BusinessWeek spoke with some 50 former and
current MMC employees, insurance industry executives, and investigators — and
discovered that the firm’s problems may well go far beyond Spitzer’s initial
BusinessWeek has learned that MMC and its executives could face a raft of
further legal and regulatory problems. Spitzer’s office is mulling criminal charges
against several execs connected with the insurance brokering scandal. It is also
looking into whether Mercer, MMC’s pension-consulting arm, and Putnam
Investments, MMC’s mutual-fund company, push clients into buying Marsh insurance
As part of an industry-wide sweep, the Securities & Exchange Commission is
probing Mercer’s alleged “pay to play” practices of requiring payoffs from money
managers who want it to recommend them to pension clients. At the same time
regulators are examining payments Putnam and other mutual-fund outfits make to
companies to ensure that their funds are featured in corporate 401(k) plans.
As if that’s not enough, several class actions have sprung up — at least one
regarding the alleged fraud at Marsh Inc., as the insurance brokerage is known,
and others involving Putnam.
Already, the legal onslaught is taking a toll. On Oct. 19, Moody’s Investors Service
downgraded the firm’s debt, citing concerns about “financial consequences” arising
from Spitzer’s lawsuit. And fear that some of MMC’s revenue streams could dry up
has knocked down its share price. In the four trading days following Spitzer’s Oct.
14 announcement, the stock plummeted 48%, wiping out $11.5 billion in market cap.
At the center of the storm stands Jeff Greenberg, 53. If you ask almost anyone
about him, you’ll hear that he is smart as a whip, incredibly knowledgeable about
the insurance business, well-spoken, and polished. Much like his father, Maurice R.
“Hank” Greenberg, 79, the legendarily hard-charging chairman and CEO of insurer
American International Group Inc. (AIG ), he has a history of being opportunistic
when it comes to scoring profits for his company. Even now, his defenders insist
that he inherited serious problems, particularly in the brokerage and mutual funds
businesses, when he moved into the top slot….
The firm’s obsessive focus on secrecy helps keep any misdeeds under wraps, say
the sources. “Some companies have a culture based on kickbacks and undisclosed
financial arrangements, and their people are forced to remain silent about
wrongdoing,” says Edward A.H. Siedle, a former Putnam compliance director and
SEC official who now heads the Center for Investment Management Investigations
in Ocean Ridge, Fla., which looks into pension fraud….
The day after Spitzer announced his charges, MMC’s board expressed full
confidence in the CEO. That’s no surprise: Greenberg chairs the board, which Nell
Minow, editor and corporate governance expert at the Corporate Library, says is
fiercely loyal and “rife with cronyism.” Six of its 16 members are directly involved
in running Marsh Mac or one of its subsidiaries, says Glass Lewis & Co., a San
Francisco proxy-research firm.
The board may be compelled to take action against top execs if enforcers now
circling the company are able to force fundamental changes in the way it does
business. Analysts and other experts say that could damage the company’s financial
“If you eliminate all the questionable payments at Marsh & McLennan, you
eliminate half of their profits,” says a former executive. Spitzer’s complaint says
contingent commissions — lucrative payments Marsh receives for steering
unsuspecting clients to certain insurers — alone amount to $800 million a year, or
about half the insurance brokers’ 2003 net income….
“Throwing the Quote”
Perhaps William Gilman, Marsh Global Broking’s executive director of marketing
and a managing director, was doing the worrying. Gilman, in his 60s, is a larger-than-life character who some call Kill Bill, after the Quentin Tarantino movies. The
nickname could also have something to do with an internal AIG memo about bidding
for business that was an exhibit in the Spitzer case: “Per W. Gilman — get to right
number [regarding a bid] or ‘we’ll kill you.”‘ Says a former colleague: “He’s the kind
of guy who stubs a cigarette out in your coffee cup.”
Gilman, says Spitzer’s complaints, strictly enforced the system of rigged bids and
payoffs from insurers. He also rated insurers by how much they paid Marsh in
contingent commissions. A September, 2003, e-mail from his office released by
Spitzer reads: “We need to place our business in 2004 with those that…pay us the
On Oct. 19, MMC suspended Gilman and four others.
Folks dealing with Marsh were supposed to abide by “Billy’s Rules” — a playbook
Gilman devised for insurers, according to someone familiar with the company. The
rules were: 1) No “no’s” (meaning Gilman should never be told “no” about any
predetermined Marsh arrangement). 2) Don’t get stupid (never question Marsh’s
schemes). 3) If you get stupid, we will broom your ass. 4) Never think you own your
business, you only rent your business. Marsh owns your business. “Billy’s Rules,”
emblazoned on an office plaque, hung in Gilman’s office.
Gilman, according to the complaint, oversaw Marsh’s “throwing-the-quote” scheme,
whereby some insurers were told to quote artificially high bids for business.
Several times, Gilman refused to allow AIG to relay competitive bids to clients,
according to Spitzer’s complaint, warning AIG that “it would lose its entire book
of business with Marsh” if it didn’t provide higher price quotes than the
insurer Marsh favored…
The phony quotes were often referred to as “throwaway quotes,” “protective
quotes,” “backup quotes,” or “B quotes,” says the complaint. In return, according to
Spitzer, Marsh protected AIG and other firms that played ball when it was their
turn to win. AIG declined to comment.
Gilman also staged what he called “drive-bys” — in which insurers were asked to
attend presentations for prospective clients even when they knew they had no
chance of snagging the deal, according to Spitzer. A regional manager for Munich-American RiskPartners, a division of American Reinsurance, who was so frustrated
by constant requests from Marsh for “live bodies” to attend drive-bys that he
wrote in an all-caps e-mail: “We don’t have the staff to attend meetings just for
the sake of being a body. While you may need a live body, we need a live
Gilman may have enjoyed such power because Marsh already dominated insurance
brokering. By the late ’90s, Marsh had cornered 40% of the global business thanks
to aggressive acquisitions. Marsh’s grip tightened when it centralized control of
broking activities in New York. Analysts say Marsh’s dominance allows it to control
pricing, the way insurance products are structured, and how premiums and payouts
“They have both their clients and insurers by the cojones,” says a competitor.
But now it’s MMC’s top brass who are squirming. Being in the spotlight is highly
uncomfortable for MMC — long known as a patrician, white-shoe firm with an air so
understated and secretive that at least one former exec likened it to working at
the CIA. Its ranks have included Ambassador L. Paul Bremer III, former
Presidential Envoy to Iraq, who recently ran MMC’s crisis-consulting business;
Stephen Friedman, President George W. Bush’s top economic adviser and former
Goldman, Sachs & Co. (GS ) co-chairman, who was an MMC senior principal; Craig
Stapleton, the husband of George W. Bush’s cousin Dorothy, who was an MMC
president; and Lord Lang of Monkton, a former British Member of Parliament who
still sits on the board….
“I’d Love to Talk…But”
MMC certainly goes to extraordinary lengths to ensure loyalty. A former Putnam
executive recalls being grilled by a company psychiatrist in a hotel room for hours
during a job interview. Says the former exec: “Everyone has a Dr. [James] Terry
story. He would ask questions like: ‘What’s the worst thing that ever happened to
you?’ ‘What are your views on religion?’ ‘Who do you vote for?’ They tell you
they’re looking for any signs of malfeasance or criminality. But they’re also looking
for people who will fit in, lockstep, at the company.” An MMC spokeswoman claims
that using a psychiatrist for screening purposes is “industry practice.” Terry could
not be reached for comment.
Once they’re in, most people who join MMC’s upper echelons must sign binding
noncompete agreements, say both current and former employees. “Each time you
exercise stock options, you have to sign a new one,” says one former exec. MMC
calls this, “a generally accepted practice.” Employees who leave MMC and then
disparage it in public risk losing any deferred compensation to which they are
One former MMC exec told BusinessWeek: “Gee, I’d love to talk to you. There’s
a lot to say. But they’ve got my money.”
Since moving to rival broker Willis Group Holdings Ltd. (WSH ), a former Marsh
exec says he has been spied on by a private investigator who he suspects was Kroll
Inc., which MMC bought in July for $1.9 billion. He says he believes MMC wants to
ensure that former employees are not using its proprietary information. MMC
would not comment without specific details. Another former exec says MMC
constantly monitored internal phone calls. MMC says it is unaware of this….
And despite the unfolding scandals, most industry players still seem to respect
Greenberg. He certainly got high marks in his early days as MMC CEO for his
handling of the aftermath of the September 11 World Trade Center attacks. Three
years earlier, Marsh had leased floors 93 to 100 in Tower One, and 294 MMC
employees — mostly salesmen, secretaries, and analysts in their 20s and 30s — lost
their lives after the first airplane hit. At services, Greenberg spoke movingly about
the makeshift memorial that had occupied an entire wall next to the cafeteria at
MMC’s Sixth Avenue headquarters.
Still, just days after September 11, Greenberg and top MMC execs met to figure
out how to profit from the disaster. They formed a subsidiary — Axis Specialty
Ltd. — to sell insurance to corporate customers atthree or four times the rates
before September 11...
For some industry players the move recalled what Greenberg did in 1992 after
Hurricane Andrew slammed into South Florida and wiped out some $15 billion worth
of property. Jeff, who was working for dad at AIG, sent out an internal memo
stating: “This is an opportunity to get price increases now.“
It was leaked to the press, which had a field day — with one newspaper branding
him “a vulture.” The memo moved Ralph Nader to complain and Florida
regulators to freeze rates….
When Jeff was working under his father in the early ’90s, heading up AIG’s
domestic brokerage group, Marsh sources say Hank raked him over the coals at a
meeting in front of top executives.
Hank, they say, had ordered Jeff to deal with a personnel issue, but Jeff had
dragged his feet. Says one: “Hank started yelling at Jeff in front of everyone: ‘You
either fix your management problem, or I’ll fix mine!”‘
But the coup de grace came in 1995 when Hank abruptly promoted Jeff’s younger,
less experienced brother Evan, making them equals in AIG’s hierarchy. Two weeks
later, Jeff left.
Evan, 49, is a college dropout and nonconformist who, by his own admission, had a
bit of a troubled youth. But he had a knack for the insurance business and rose
quickly at AIG. Unlike Jeff, Evan is one of the few people who stand up to his
father. “Evan’s scrappy — a yeller,” says an insurance industry veteran….
But in 2000, Evan also resigned from AIG. He now heads Ace Ltd. (ACE), a
Bermuda company named in Spitzer’s complaint — along with AIG — as one of those
involved in Marsh’s alleged bid-rigging and price-fixing schemes.
Months after exiting AIG, Jeff landed at Marsh & McLennan, where he had
worked as a broker in the mid-’70s. As a partner in MMC Capital, the firm’s risk-capital unit, he excelled at building MMC’s Trident Funds, which invested billions in
various insurance entities and real estate, and hoisted himself onto the fast track.
He was determined “to show up his dad and brother,” says a source familiar with
At Marsh Mac, Jeff was able to take advantage of the Greenberg name: Then-CEO
and Chairman Smith — an old acquaintance of Hank’s — was Jeff’s personal mentor.
Jeff was named chairman and chief executive of MMC Capital in 1996. By the
beginning of 1999, he had been promoted to president of Marsh & McClennan. And
by the end of that year, he was CEO. He was elected chairman in May, 2000.
Even if Greenberg did inherit the Marsh Mac mess, he’s under fire for how he
handled it. “Despite seeming like a hero for ousting [former Putnam CEO Lawrence
J. ] Lasser and moving toward cleaning up Putnam, the truth is, Greenberg didn’t
address things until he absolutely had to,” says a former colleague.
In November, 2003, after Putnam was slapped with a securities-fraud charge,
longtime CEO Lasser, 61, was forced to resign. Regulators alleged that company
brass had been aware of illegal trading in Putnam funds since 2000….
A Frustrating Process
In the past year, Putnam has lost some $70 billion in assets. Recently, several
pension funds, including CalPERS, the California Public Employees’ Retirement
System, agreed to let Putnam compete for its business, but with stipulations:
Putnam must consider pruning executive pay and ramp up financial disclosure….
But governance gurus still aren’t happy with MMC or Greenberg. The Corporate
Library says the company still awards its execs excessive compensation. In 2003 it
paid an aggregate $60 million to its top five officers, vs. an average $21 million at
other large financial companies, according to Glass Lewis.
MMC says: “Our independent directors and outside consultants set compensation.”
This past year, several large pension funds joined forces to propel an independent
director, Zachary W. Carter, a lawyer, onto the board.
Richard Ferlauto, director of pension and benefit policy at the American Federation
of State, County & Municipal Employees, says it was a slow-moving and frustrating
process: “Jeff thought he knew what was right, and he wasn’t going to let anyone
rock the boat.”…
Earlier this year Greenberg asked mentor Smith, 69, to come out of retirement to
help him. Insiders say Greenberg was intimidated by Lasser and needed Smith to
negotiate with the former Putnam CEO. Smith, who has an office close to
Greenberg’s, was named chairman of Putnam. Greenberg also promoted Steven
Spiegel, Lasser’s right-hand man, to vice-chairman of Putnam….
Some of the bad stuff may have had to do with Putnam funds being pushed by
Mercer, Marsh Mac’s pension-consulting arm. Mercer was long considered a sleepy,
less profitable outpost of the Marsh kingdom. Then, say insiders, in the mid-’90s it
came under pressure to turn bigger profits. That’s when it started offering pricey
conferences for money managers at $50,000 to $60,000 a pop.
“If you don’t attend those, it’s nearly impossible to get on Mercer’s list to manage
pension money,” says Jack Silver, a former trustee at Chicago’s teachers’ pension
fund. MMC denies this. The SEC is investigating these allegations. And Spitzer
will likely look into whether Putnam pushes Marsh-brokered variable annuity
products onto investors.
“There’s no disclosure about this conflict to Putnam clients,” says Selva Ozelli, a
securities lawyer close to the investigation. There could also be an investigation into
how Marsh, allegedly slow to pay out premiums, profits from the float.
That means deepening troubles for Greenberg, who some critics say has done far
too little to shore up MMC’s reputation over the past year.
“Print it, post it, and pray — it seems as if that’s all Greenberg’s done when it
comes to ethics,” says Patrick McGurn, special counsel at Institutional Shareholder
Services Inc., a corporate governance consultant. Until now, say analysts,
Greenberg’s main focus has been on acquiring more companies. Now he’s forced to
deal with spreading legal woes and a public-relations nightmare.
Says David D. Brown IV, Spitzer’s investment protection chief: “We’re really
just at the beginning here. We’re pursuing a number of leads and will follow
them where they take us.”
In an Oct. 15 press release Greenberg announced that MMC was appointing a
private investigator to look into the alleged insurance broker fraud. It’s a move
some might have applauded, except for one thing: He gave the job to the head of
MMC’s Kroll — who’s now the head of Marsh.
July 6, 2004
SEC eyeing fund payments to 401(k)s
Regulators want to know if firms
pay for shelf space
By Kathie O’Donnell, CBS MarketWatch
BOSTON – The Securities and Exchange Commission Tuesday said it’s looking into
payments that mutual funds make to 401(k) plans to determine what use is made
Fidelity Investments, T. Rowe Price Group Inc., and Putnam
Investments, a unit of Marsh & McLennan Cos. (MMC) were among firms
that received questionnaires from the SEC which is examining payments that funds
and their advisers make to 401(k) plans, consultants and plan platforms….
“We want to better understand the nature and purpose of these payments and
their disclosure, including whether they’re reimbursements for plan expenses or
payments for shelf space or some other purpose,” the agency said in a statement….
Putnam spokeswoman Nancy Fisher confirmed the company received a
questionnaire regarding its defined contribution practices.
“We are cooperating fully,” she said….
What goes around comes around …
October 20, 2004
Investors Are Losing Ground as
Insurance Inquires Expand
By Gretchen Morgenson, The New York Times
The disastrous decline inMarsh & McLennan’sstock that has followed Eliot
Spitzer’s lawsuit of last week has injured a broad array of institutional and
individual investors. But the pain of losing almost 50 percent in share value is
perhaps most excruciating to the thousands of Marsh & McLennan employeeswho
have bought Marsh stock in the company’s employee stock purchase plan or in their
In the months after the market crash of 2000, the lesson of diversifying beyond
one company’s stock was hammered home. But as the market recovered, many
workers seemed to forget that important lesson. Marsh employees were among
them; at the end of last year, one employee-benefit plan had $1.3 billioninvested
in Marsh & McLennan stock.
Now, of course, the risk in those holdings is all too apparent. But employee-benefit
experts say that Marsh may be putting its 60,000 employees at additional risk,
even as it enriches itself, by limiting the alternative investments to mutual funds
that are for the most part managed by its Putnam Investments subsidiary.
“Fiduciaries of 401(k) plans are charged with making decisions that are in the
best interests of the participants in the plan,” said Edward A. H. Siedle, a
former Securities and Exchange Commission lawyer who is president of the Center
for Investment Management Investigations, a unit of the Benchmark Companies in
Ocean Ridge, Fla., that investigates money management abuses on behalf of
pensions. “When they are also employees of a money management company that
gets hired by the plan there is a conflict of interest. This is especially problematic
when the money manager is a high-cost, poor performer.”…
Given that the company is in the financial services industry it is perhaps not
surprising that workers at Marsh & McLennan and its subsidiaries have been given
many opportunities to buy their company’s stock or its money management services.
There is a pension plan, a stock purchase plan, 401(k) accounts, stock option grants
and a cash bonus deferral plan to name a few. And in all cases, Marsh stock or
Putnam funds dominate the offerings.
Sadly for these employees, Marsh shares have gone pretty much straight down
since Mr. Spitzer filed his lawsuit against the company, contending that bid-rigging
and other improprieties occurred in Marsh’s insurance brokerage unit.
Yesterday, Marsh stock fell another $1.47 a share, or 5.7 percent; it closed at
$24.10 and has lost 48 percent since Mr. Spitzer filed the suit.
Workers who have participated in the Marsh stock purchase plan have taken
perhaps the biggest brunt of this slide. Last year, 3.8 million shares were bought in
the stock plan, well above the 2.85 million Marsh shares purchased in the plan in
2001. And employees working in the company’s international division, which is
broken out separately, bought 1.2 million shares in 2003, far more that the 717,000
shares they purchased during the previous year.
Taken together, the shares bought by employees in the Marsh stock purchase plan
amounted to five million shares, or almost 1 percent of the 533 million shares
outstanding at the company at the end of last year.
Marsh employees have also bought their company’s stock aggressively in various
401(k) plans, a decision they now almost certainly rue. According to Marsh filings,
at the end of last year, a defined-contribution plan for Marsh & McLennan
employees has assets of $2.4 billion.
Almost 60 percent of the plan’s assets were in Marsh stock – $1.3 billion
Another $938 million in the plan was in funds managed by, you guessed it, Putnam
Investments. Of the 17 fund choices on the plan’s menu, 10 are Putnam Funds….
At Putnam Investments, employees have their own 401(k), with assets of $441
million at the end of last year. As is typical in such accounts, Putnam employees can
invest their contributions, and any that are matched by the company, in a variety of
One of those options is Marsh stock and as of December 2003, Putnam employees
held 344,000 shares with a value of $16.5 million, or $47.96 a share. Those
shares, if they are still in the plan, have been cut in half….
Most peculiar, the Putnam 401(k) plan offers no low-cost index funds intended to
mimic the performance of a broad market average, like the Standard & Poor’s 500
index. Such funds are usually ubiquitous in 401(k) plans. Mr. Siedle said such an
omission at any plan was “an invitatation to litigation.”…
Trustees of the 401(k) plan for Putnam employees are Francis N. Bonsignore,
senior vice president for executive resources and development at Marsh &
McLennan, and Sandra S. Wijnberg, the company’s chief financial officer. They
have a fiduciary duty to plan participants to provide the best array of investment
options. But as Marsh executives, they may be tempted to benefit their company
by propelling their workers into Putnam funds. The Marsh spokeswoman declined to
comment of the trustees.
About the only Marsh employee plan not holding Marsh stock is the defined-benefit pension plan, which had $2.4 billion in assets as of last December.
Employees in this plan do not choose the investments; money managers oversee the
But it is in the selection of those money managers that Marsh may be putting its
interests ahead of its employees. Of the $2.4 billion under management, $1.8
billion is overseen by Putnam. And, adding to the potential for conflicts, the
pension plan employs as an investment consultant Mercer Inc., the Marsh
subsidiary that helps pension funds decide which money managers to hire.
Given Mercer’s role as a consultant, it is troubling but perhaps surprising that so
much of the Marsh pension plan would be managed by Putnam.
NEW YORK (AP) – Marsh & McLennan Cos, a professional services firm, combined
the defined contribution administration business of Putnam Investments and
Mercer HR Outsourcing to offer global human resources outsourcing services, the
The combined unit, Mercer Human Resource Consulting, will oversee the
organization, and the U.S. arm of the business will be led by Dave Carlson, Mercer’s
national practice leader for human resources outsourcing, the company said….
May 19, 2004
Marsh & McLennan to buy Kroll
By Eric Dash, The New York Times
Marsh & McLennan, the giant insurance and financial services company, has agreed
to pay $1.9 billion in cash for Kroll, a leading corporate security business.
The transaction, announced Tuesday, will broaden Marsh’s reach into data recovery
and corporate detective work at a time when the New York company’s three main
businesses face separate regulatory investigations.
Jeffrey Greenberg, chairman and chief executive of Marsh, declined to discuss the
effect of those investigations. He preferred to highlight the “strategic fit”
between New York-based Kroll, which helped find the hidden assets of Saddam
Hussein in the early 1990s, and his own company, which provides insurance
brokerage services to corporate clients through Marsh Inc., money management
through Putnam Inc., and consulting through Mercer Inc.
“We see this transaction as being able to help us serve clients more effectively
with complementary services,” Greenberg said, noting Kroll’s expertise in employee
background checks, data recovery and global restructuring advice, in addition to its
traditional investigative work….
Given the growth potential and cost savings, Greenberg said that he expected the
transaction to add to earnings in 2005. Still, some analysts expressed concern that
the price was steep and noted the difficulty of cross-selling services.
Marsh now derives a little less that 10 percent of its $11 billion in revenues from
risk-related consulting and processing services. But Greenberg said that
heightened global security concerns and more stringent corporate compliance
requirements had led to double-digit growth in the area.
Greenberg said he had approached Jules Kroll, whom he has known for about a
dozen years, in February about a potential acquisition of the company that he
Upon the deal’s completion, Kroll will become part of the risk and insurance
subsidiary of Marsh.
Michael Cherasky, Kroll’s chief executive, will run the new unit and Jules Kroll will
serve as vice chairman….
The state Employees’ Retirement System voted yesterday to fire Putnam
Investments and pull back the $440 million managed by the firm after it was
charged with securities fraud.
Hawai’i joined a growing number of states whose public employee pension plans have
fired Boston-based Putnam, the fifth-largest mutual fund firm in the country. In
the past two weeks, states have taken away $6 billion from Putnam as confidence
eroded in the scandal-tainted company.
The ERS board said its action against Putnam, which managed 5.5 percent of ERS
assets, was based on a lack of trust, not performance.
“We have to hold ourselves as board members to the highest standards and we have
to hold the people who work for us to the highest standards,” said Rick Humphreys,
vice chairman of the state pension fund board of trustees.
The decision to fire Putnam will not result in any losses to 93,000 public employees
and pensioners covered by the plan. The pension plan’s costs will be limited to some
trading expenses as it switches from one money management firm to another.
The money managed by Putnam will be put in an index fund that tracks the S&P 500
until the board chooses another manager, which could come as soon as Nov. 21.
Regulators have charged that two of Putnam’s money managers engaged in market
timing. In market timing, fund shares are rapidly traded. Such activity boosts
trading costs and volatility in the fund to the detriment of long-term investors.
While not illegal, market timing is prohibited by Putnam’s policy.
Putnam fired the two managers. One of them, Justin Scott, had oversight over
large-cap growth stock investments in which the state pension plan had money, said
ERS consultant Callan Associates.
When the market timing activities were discovered, Putnam told the managers to
“cut it out” but didn’t go much further, Ron Peyton, president of San Francisco-based Callan, told the state pension board. The response later “created controversy
and outcry over corporate governance issues in Putnam.”
“The action and inaction of management has been a troubling point,” added Kimo
Blaisdell, the state ERS chief investment officer.
Putnam’s firing is a warning to other managers, Humphreys said.
“We will do that to any manager that we find are unethical in their dealings,” he
The ERS board also voted to send inquiry letters to two other investment firms,
Invesco and Jennison, an indirect subsidiary of Prudential, which are under
investigation for conducting trading activities that favored some investors to the
detriment of others.
Invescohandles $260 million in real-estate assets for the state pension plan while
Jennison manages $207 million in small-cap stocks. The board is seeking more
information about any investigations.
The state pension plan also reported yesterday that its investments grew by 2.89
percent in the quarter ended Sept. 30, compared to the quarter before that. The
median growth in the quarter for large public funds tracked by Callan Associates
was 3.05 percent. Over the past 12 months, ERS has returned 16.95 percent vs.
17.65 percent for large public funds.
The board also took action on underperforming managers. It left Bank of Hawai’i,
Schroder Capital and Capital International on its watch list and took off Pacific
Income Advisors because of improved performance. The pension added Bank of
Ireland and Bradford & Marzec to the watch list; it also decided to send warning
letters to T. Rowe Price and Independence Investment Associates for
December 8, 2003
Funds Want Marsh & McLennan Board Changes
By Associated Press
NEW YORK — Four big public pension funds plan to sponsor a shareholder
resolution to change the board of Marsh & McLennan Cos., the parent of Putnam
Investments, in response to the company’s role in the widening mutual-fund probe.
The pension funds will seek access to Marsh & McLennan’s proxy to nominate and
elect independent directors, pending approval by the Securities and Exchange
Commission of a new rule governing shareholder access to corporate proxies.
The pension funds involved are the California Public Employees’ Retirement
System; the California State Teachers’ Retirement System; the New York State
Common Fund; and the AFSCME Employees Pension Plan, a union pension fund.
In a news release issued Monday, chiefs of the pension funds sharply criticized
Marsh & McLennan and Putnam, even going so far as to compare the companies to
Enron Corp., the former energy giant.
They singled out Lawrence Lasser, former Putnam CEO, for criticism related to
what they called his “excessive compensation.”
“Marsh & McLennan deserves to be the first company in U.S. history to face a
binding proxy access proposal because of its gross failure to have proper
controls that could have prevented the Putnam disaster,” AFSCME pension
Chairman Gerald W. McEntee said in the release….
In October, public pension funds began firing Putnam as a manager of their
retirement assets after the firm was charged in an industrywide probe of mutual
fund trading practices.
Launched in September by New York Attorney General Eliot Spitzer, the
investigation is looking into rapid-fire and after hours trading of mutual funds by
Some 11 states, including Vermont, Massachusetts and Rhode Island, ended up
pulling out of Putnam, citing concerns related to the probe.
“Investors have pulled more than $32 billion in assets out of Marsh’s Putnam
subsidiary due to its involvement in this terrible mutual fund scandal, and Marsh’s
stock price is down about 10 percent,” New York State Comptroller Alan Hevesi
said in the news release.
“I can’t think of a stronger case worthy of shareholder involvement, and I have no
doubt that given the chance, shareholders will respond favorably to our initiative.”
November 1, 2003
More Clients Dump Putnam in Scandal
Company’s future potentially on the line over trading issues
By Justin Pope, Associated Press
BOSTON – Pension funds in Pennsylvania, Iowa and Rhode Island fired Putnam
Investments yesterday, joining a growing exodus of customers abandoning the
embattled fund company.
They joined Massachusetts, New York and Vermont pension officials, as well as
some universities, who are taking their business away from Putnam following
accusations by regulators that four of its fund managers engaged in personal short-term investing at clients’ expense.
In just two days, public pension funds have announced plans to pull at least $4.4
billion out of the company, which lists $272 billion in assets under management.
New England Pension Consultants, a firm that advises 190 pension plans with $150
billion in assets, has recommended clients get out of Putnam international stock
Putnam, a unit of Marsh & McLennan, had no immediate comment yesterday on the
latest departures of clients….
October 29, 2003
Putnam, 2 ex-officers
face fraud charges
By Justin Pope, Associated Press
BOSTON – State and federal regulators accused Putnam Investments and two of
its former investment officers of fraud yesterday, the first formal allegations of
wrongdoing by a mutual fund company in what is becoming a scandal for a once
The filings by the Securities and Exchange Commission and the Massachusetts
Securities Division allege that Boston-based Putnam improperly allowed six
employees, including four fund managers, to make market-timing trades using funds
they oversaw and information not available to the public.
The civil actions against Putnam mark the first time a fund company has been
accused of breaking the law, although New York authorities have accused three
other individuals and a hedge fund of fund-related wrongdoing.
Several dozen fund companies have been subpoenaed in the investigation. The
situation has become a black mark on the $7 trillion mutual fund industry, which
had prided itself on steering clear of the corporate scandals of recent years.
Yesterday, authorities indicated more fallout is ahead.
“This should send a clear message to everyone in the fund business they should
examine their books, because we will be examining them,” Massachusetts Secretary
of State William Galvin said.
The complaints filed yesterday named two of the managers: Omid Kamshad and
Justin Scott, identified as managing directors and chief investment officers of
Putnam’s International Core Equity Group and International Equities Group
respectively. Authorities said further action still might be taken against the four
other Putnam employees alleged to have participated in the trading.
The SEC cited Putnam for failing to deter short-term trading and for fraud in
connection with the sale of the funds.
Putnam is also accused of defrauding customers by allowing members of a New York
union retirement plan to engage in market-timing of certain funds even though
those funds prohibited the practice…
Market-timing is not illegal, but many funds discourage the process because it hurts
long-term shareholders. Market timers jump in and out of mutual funds, trying to
take advantage of late information that may affect the price of a fund before that
fund’s daily price can be set. Indirectly, profits won by market timers skim money
from others who own shares.
The Massachusetts complaint claims Putnam ordered Kamshad and Scott to stop
market-timing in 2000 but did not punish them or require them to return the
<<< FLASHBACKS <<<
SEC Info: Putnam Convertible Opportunities & Income Trust (just one of Putnam’s
many funds) – On 6/26/95:
Trustees and Officers
George Putnam. Mr. Putnam, age 68, is the Chairman and President of the Fund and
of the other Putnam funds. He is the Chairman and a director of Putnam and
Putnam Mutual Funds Corp and a director of Marsh & McLennan Companies, Inc,
their parent company. Mr. Putnam is the son of the founder of the Putnam funds . .
. Mr. Putnam currently also serves as the Director of the Boston Company, Inc,
Boston Safe Deposit and Trust Company, Freeport-McMoRan, Inc., a mining and
natural resources company, General Mills, Inc. . . . Houghton Mifflin Co, a major
publishing company, and Rockefeller Group, Inc., a real estate manager….
George Putnam III. Mr. Putnam, age 43, is the President of New Generation
Research, Inc., a publisher of financial advisory and other research services
relating to bankrupt and distressed companies, and New Generation Advisers, Inc.,
a registered investment adviser which provides advice to private funds specializing
in investments in such companies….
Eli Shapiro. Dr. Shapiro, age 78, is the Alfred P. Sloan Professor of Management,
Emeritus at the Alfred P. Sloan School of Management . . . Dr. Shapiro currently
serves as a Director of Nomura Dividend Income Fund, Inc, a privately-held
registered investment company managed by Putnam. He is also a past Director of
many companies, including . . .Connecticut Bank and Trust Co, the Federal Home
Loan Bank of Boston . . . Travelers’ Corporation, an insurance company….
A.J.C. Smith. Mr. Smith, age 60, is the Chairman and CEO of Marsh & McLennan
Companies, Inc. . . . Mr. Smith is a Director of the Trident Corp, and also serves
as a Trustee of the Carnegie Hall Society, the Central Park Conservancy and The
American Institute for Chartered Property Underwriters (CPU)….
* * *
Marsh & McLennan Shares Fall Amid
Concerns About Putnam
New York, March 22 , 2001 (Bloomberg) — Marsh & McLennan Cos. Inc. shares
fell to a 52-week low amid concerns that falling equity markets will cut into
earnings at its Putnam Investments unit.
Shares of the world’s biggest insurance broker fell $1.30 to $88.10, after earlier
dropping to a low of $85.26.
”We’re trying to avoid the stock,” said Paul Raman, an analyst at Glenmede Trust
Co., which has sold all its Marsh & McLennan shares. ”Its earnings have been driven
by Putnam Investments for the last five or six years. That engine has run out of
gas,” Raman said.
Marsh & McLennan is expected to earn $4.62 a share in 2001, according to a survey
of 10 analysts by First Call/Thomson Financial. A month ago, it was expected to
earn $4.70 a share, according to First Call.
Putnam’s assets under management were $344 billion at the end of February,
compared with $370 billion at the end of 2000 and $406 billion at the end of the
Putnam, the fourth largest U.S. fund company, reported operating profit of $245
million in the fourth quarter, up from $209 million a year earlier.
A number of Wall Street analysts, including Alice Schroeder of Morgan Stanley
Dean Witter & Co. and Jay Cohen of Merrill Lynch & Co. have recently lowered
earnings estimates for Marsh & McLennan because of concerns about earnings at
Putnam Investment’s Former Vice
President Convicted of Fraud
Boston, March 26, 2001 (Bloomberg) — A former Putman Investments Inc. vice
president was convicted of conspiracy for plotting to illegally transfer $78,909 of
Paul Murphy, 39, who served as vice president of the company’s control division,
was convicted on one count of conspiracy and faces up to five years in prison and a
fine of $250,000, U.S. Attorney Donald Stern said. He will be sentenced June 20.
Murphy and former Putnam employee Robin Kelly transferred the money from a
miscellaneous account in October 1999 into a Vanguard Group account that Kelly
shared with her mother, the government said. Kelly, a former assistant vice
president, pled guilty in federal court July 7.
Putnam said at the time of Murphy’s indictment that no customer accounts were
affected by the illegal transfer. Putnam, a unit of New York-based Marsh &
McLennan Cos., manages more than $400 billion for 12 million individual
shareholder accounts and 1,000 institutional clients.
* * *
Putnam’s Lasser Paid$35 MILLION in 2000;
Gets Contract Extension
New York, March 29, 2001 (Bloomberg) — Putnam Investments’ Chief Executive
Lawrence Lasser received $35 million in compensation last year, a 30 percent raise,
and a contract extension through 2005, according to a Securities and Exchange
As head of the fourth-biggest U.S. mutual fund company, Lasser received a salary
of $1 million, a bonus of $33 million and other compensation of $1 million, the filing
said. In 1999, he earned $27 million, including a bonus of $26 million.
Putnam’s operating income rose 23 percent to $1 billion last year. Its mutual fund
assets fell 19 percent to $343.5 billion at the end of February from $422.2 billion
last March, according to Boston-based research firm Financial Research Corp.
New York-based Marsh & McLennan Cos., Putnam’s parent, said in the filing that
under the contract extension Lasser will receive options for 50,000 shares of
Marsh & McLennan stock, 100,000 restricted stock units of Putnam and options to
acquire 50,000 class B shares of Putnam.
Lasser also was granted a deferred special payment equal to the value of 150,000
shares of Marsh & McLennan, the biggest insurance broker, as of Feb. 15, 2001,
worth about $16.7 million.
He also is entitled to receive an additional award of options on 50,000 shares of
Marsh & McLennan in March of 2002, 2003 and 2004, as well as an additional award
of 50,000 class B shares of Putnam in March 2002.
Jeffrey W. Greenberg, Marsh & McLennan’s chairman and chief executive,
received $7.2 million in cash compensation in 2000, 45 percent more than in 1999….
Marsh & McLennan said it also gave Greenberg 200,000 10-year stock options that
could be worth $32.9 million….
Marsh & McLennanshares, which gained 22 percent in 2000,have lost almost 22
percent of their value this year.
Putnam’s Jennifer Leichter Resigns
From $1.4 Billion Junk Fund
Boston, April 2, 2001 (Bloomberg) — Jennifer Leichter, who managed the $1.4
billionPutnam High Yield Trust II, resigned to pursue ”other interests,” said
Putnam spokesman Matthew Keenan.
The fund returned 4.1 percent in the first quarter, after declining 8.5 percent last
Leichter, who joined Boston-based Putnam in 1987 as a high yield bond analyst, quit
on Friday. She was previously a high yield bond analyst for Kidder Peabody.
Putnam, the No. 4 mutual fund company, manages $8.4 billion in high yield bond
* * *
Some interesting incestuous relationships (circa 2001)…
•Citigroup is the 3rd largest institutional investor in Marsh & McLennan.
•Citigroup is the 3rd largest institutional investor in Chubb Group (Federal
Insurance Co. et al)
•Citigroup is the 10th largest institutional investor in American International
•Citigroup is the 6th largest institutional investor in L-3 Communications.
•Putnam is the largest institutional investor in L-3 Communications.
•Putnam is the 2nd largest institutional investor in Chubb Group.
•Putnam is the 6th largest institutional investor in Citigroup.
•Putnam is the 5th largest institutional investor in AXA Financial.
•Putnam is the 3rd largest institutional investor in Starwood Hotels.
•Goldman Sachs is the 10th largest institutional investor in Starwood Hotels.
•Wellington Management Co. is the 9th largest institutional investor in
•Wellington Management Co. is the #1 institutional investor in Marsh &
•Putnam is the #1 institutional investor in Harrah’s Enterprises.
•Putnam is the 6th largest institutional investor in Isle of Capri Casinos.
•Goldman Sachs is the 3rd largest institutional investor in Isle of Capri
Statement of John T. Sinnott, Chairman and CEO,
Marsh, Inc. Before the House Financial Services
Committee “Protecting Policyholders from Terrorism:
Private Sector Solutions”
Mr. Chairman and members of the Subcommittee, I amJohn T. Sinnott, Chairman
and CEO of Marsh, Inc, headquartered in New York City.
Marsh is the world’s largest risk management and insurance brokerage firm. We
have 35,000 employees and serve clients in over 100 countries around the world.
We also serve virtually all of the major insurance firms with reinsurance broking
and related services through ourGuy Carpenter unit. My testimony is on behalf of
my firm as well as the member firms of the Council of Insurance Agents and
I’d like to thank you, Mr. Chairman, for giving me this opportunity to testify today
on the topic of private sector solutions to the burgeoning terror insurance
availability crisis in the wake of the September 11 attacks….
The events of that day were singularly devastating on one industry – the financial
services industry – not only in business terms, but also in human terms.
The World Trade Center housed several companies from the banking, securities
and insurance industries that must now deal not only with the new business
challenges facing them as a result of the attacks but also with the loss of
colleagues and employees. Within the insurance industry, the brokerage community
was hit particularly hard. Marsh maintained offices in both of the World Trade
Center towers and the space that we occupied in the north tower comprised the
floors directly struck by the first aircraft. No one in those offices at the time
In fact, of the 1900 members of the Marsh & McLennan Companies working in
both towers (or who were visiting that day) 294 were lost. Another colleague was a
passenger aboard one of the aircraft….
The events of September 11 have changed the landscape of commercial insurance in
a way that I have not seen in my 36 years in the business. To be sure, there have
been trying times in the past – the liability crisis in the mid-1980s, the property
catastrophe coverage problems in the early 1990s following Hurricane Andrew, to
name a couple.
Marsh rose to the occasion during both those crises to help our clients secure the
coverage that they needed to adequately protect their businesses. This is a
function that is quite common in the brokerage community – not merely selling
insurance products, but identifying client needs and developing new and innovative
products or programs to address coverage shortfalls and to make our clients more
In response to the mid-1980s liability crisis, Marsh played a leading role in the
creation of the insurance and reinsurance companiesACE Limitedin 1985 and XL
Capital in 1986. These companies were formed to provide excess liability and
directors’ and officers’ liability coverages at a time when the market could not
provide the necessary capacity. These companies were very successful in providing
much-needed market capacity and eventually were spun off from Marsh. They exist
as major insurers today.
Similarly, Marsh played a role in the creation of Mid Ocean Limited during the
property catastrophe reinsurance crisis following Hurricane Andrew in 1992. This
company has also done very well in meeting the needs voiced by our clients.
It was in this same spirit of responding to customer needs that MMC Capital, our
sister company, recently announced the formation of AXIS Specialty Limited, a
new insurance and reinsurance company formed to provide capacity needed in the
wake of the September 11 attacks. AXIS has an initial capitalization in excess of
$1 billion, and will begin underwriting later on this quarter….
But I must tell you in all candor that what your committee heard has been hearing
over the past three weeks is true – there is an immediate crisis that demands
your attention. In the current unique, and hopefully short-term, environment of
uncertainty, the private sector alone will not be able to provide the insurance
capacity America’s businesses need to conduct their operations.
Government involvement is needed until the environment becomes secure and
returns to a state of more normalcy….
May I close by saying that my firm has been severely affected by the events of
The first aircraft directly struck our offices in theWorld Trade Centerand we
lost 295 members of our corporate family. That was the real tragedy and is still
with us in our offices and hallways. We also incurred huge losses of property and
So I speak here today from painful personal experience – and perhaps with a deeper
understanding of what our clients face as they look to an uncertain future. Mr.
Chairman, let me restate that we are on the brink of an
availability/affordability crisis insurance caused by the terrorist events….
I commend you for holding this hearing, for your efforts to create a solution that
restores and strengthens the private marketplace, and I urge you to work with your
colleagues in Congress and the Administration and within our industry to find
Forget tech. The hot new deals for deep-pocketed private equity firms are in the
least sexy business on the planet: insurance.
In the wake of Sept. 11, a host of new insurers and reinsurers are opening their
doors, with billions of dollars in backing from existing insurers and big-name buyout
firms, including Boston’s Thomas H. Lee Co. Lee recently has bet $475 million on
three Bermuda insurance deals, after a year in which it made only one investment
(in phone book publisher TRW) from its massive $6.1 billion fund.
This is opportunism at its best. The last time new insurers launched was after
Hurricane Andrew struck in 1992. Rates on property-casualty insurance policies
soared following that natural disaster, much as they’ve skyrocketed since the
Some customers are seeing renewal rates jump 300 percent and 400 percent.
And they’re faced with having to buy more coverage, as their sense of risk has
increased and as acts of terror are struck from typical policies. New kinds of
special coverage will be required to guard against losses from terrorism and acts of
All this adds up to big new potential revenue streams for at least six —— and
possibly as many as a dozen —— new insurers and reinsurers (firms that pick up
excess liability from other insurers) and their investors. The start-ups are virtually
all based in Bermuda, not for the golf, but for its tax-haven status.
And they are filling a need, industry experts say, with losses sustained by current
insurance players estimated conservatively at $40 billion. The new entrants figure
they can jump in and be competitive because they aren’t grappling with losses from
the latest catastrophe.
“A lot of capital went out of the business with the catastrophe and has to be
replaced,” said Lanny Thorndike, managing director atCentury Capital, a Boston-based insurance investor.
Because of Sept. 11, he said, “there’s a higher appreciation for risk,and with
that comes higher returns for those who assume the risk.”…
And now for a closer look at some of the Marsh Birds
that nest at Putnam Investment Management
A. J. C. Smith – Chairman of the Board and CEO of Marsh & McLennan
Companies since 1992. Mr. Smith is a trustee of the various mutual funds managed
by Putnam Investment Management, Inc., a subsidiary of MMC. He is also a
member of the Board ofOverseers of theJoan and Sanford I. WeillGraduate
School of Medical Sciences of Cornell University.
In 1998, A.J.C. Smith raked in $6.5 million in salary, bonus and other compensation
from Marsh & McLennan Companies. Add to that $11.3 million in stock option
grants, and Mr. Smith goes to Washington with a total of $17.9 million. He also
has $25.2million in unexercised stock options from previous years.
On Nov 18, 1999, the Board of Directors of Marsh & McLennan Companies elected
Jeffrey W. Greenberg as CEO to succeed A.J.C. Smith, age 65, who will remain
chairman of the board until he retires from the company at its 2000 annual
meeting. It was announced that Mr. Smith will continue as a member of the
Conseco, Inc. – Indiana-based insurance company.
August 14, 2002
Putnam may suffer as
Conseco’s troubles mount
By Svea Herbst-Bayliss
BOSTON, Aug 14 (Reuters) – Mutual fund firm Putnam Investments, already facing
declines in money management fees, may suffer another blow this quarter as a
stake in insurer Conseco Inc is likely to shave millions off its pre-tax income.
In a regulatory filing, Putnam’s parent, No.1 insurance broker Marsh & McLennan
Co., said owning a stake in the ailing Carmel, Indiana-based insurer and financial
company could cost the Boston-based money manager up to $15 million….
Conseco last week missed a bond interest payment and said it plans to extend three
more bond interest payments due later this month as it begins work on
restructuring its huge debts.
Putnam is entangled in the Conseco saga because it owns an equity interest in
Boston-based buyout firm Thomas H. Lee Partners, L.P. whose Thomas H. Lee
Equity Fund IV L.P. owns a chunk of Conseco’s public stock.
“The significant capital restructuring that may result from the actions announced
by Conseco may adversely impact the value of Fund IV’s investment in Conseco, and
consequently the value of Putnam’s investments related to Fund IV,” Marsh said in
The news comes at a critical time for Putnam as America’s fourth-biggest fund
firm’s portfolios take a battering in the stock market’s relentless declines.
The firm drew heavy criticism for its decision to stop naming individual fund
managers of its funds, a step that some firms had hoped would keep them out of
the limelight when managers quit or are fired.
Amid investor complaints, Putnam quietly reversed itself and went back to naming
fund managers earlier this summer.
Putnam’s woes have already hampered Marsh & McLennan’s earnings in the second
quarter when money management fees fell even though insurance-related revenues
offset the drop….
In the second quarter, investment management revenue at Putnam fell to $581
million from $696 million a year ago while average assets under management, used
to calculate fees for managing money, slumped 11 percent to $301 million.
Putnam’s growth funds, once a main money maker, have been a particular trouble
spot as assets under management there tumbled to $39 billion from $76 billion
over the year. Putnam has also laid off scores of employees to help trim costs.
Conseco’s troubles have also deepened in the last weeks and on Monday the New
York Stock Exchange moved to kick it off the exchange after it suspended trading
its stock which was last quoted at 34 cents a share. REUTERS
* * *
September 11, 2001 <<< (Note the date!)
Conseco Sues Six D&O Insurers Over
Conseco Inc. is suing six of its own insurers, claiming they are attempting to
dodge legitimate potential claims on directors and officers policies bought by the
In its annual 10-Q filing with the U.S. Securities and Exchange Commission,
Conseco said it “maintained certain directors’ and officers’ liability insurance that
was in force at the time the Indiana securities and derivative litigation was
commenced and, in our view, applies to the claims asserted in that litigation,”
according to BestWire.
The Indiana litigation involves 45 lawsuits filed against Conseco in U.S. District
Court for the Southern District of Indiana. Conseco said 19 of those cases were
putative class actions on behalf of people or entities that purchased the
company’s common stock during alleged class periods that generally run from April
1999 through April 2000.
In those cases, plaintiffs allege that the company and individual directors and
officers violated federal securities laws by, among other things, making false and
misleading statements about the then-current state and future prospects ofConseco Finance – particularly with respect to performance of certain loan
portfolios of Conseco Finance – which allegedly rendered the company’s financial
statements false and misleading.
Because it had directors and officers coverage, Conseco didn’t establish any
reserves for possible losses with respect to those claims, the company said in its
10-Q. “The insurers have denied coverage for those claims, so we commenced a
lawsuit against them on June 13, 2001, in Marion County Circuit Court in
Indianapolis,” Conseco said.
Morgan Stanley analyst Alice Schroeder, in an Aug. 31 property/casualty insurance
briefing, wrote that she doesn’t believe an unfavorable outcome for the defendants
would have a material impact on the earnings of AIG, XL or Ace.
Schroeder said in her report that AIG’s National Union Fire “was apparently the
primary carrier issuing the policy, which carries limits of$10 million.”
“With jury awards rising at a rapid pace, insurers are getting tougher to protect
against larger losses–whether they succeed remains to be seen,” Schroeder said in
her report. “This event also confirms our view that the D&O market remains
difficult, and prices must continue to rise.”…
WASHINGTON (AP) – President Bush on Friday nominated Craig Stapleton as
ambassador to the Czech Republic. . . .
Stapleton, of Greenwich, Conn. served on the Peace Corps board of directors under
Bush’s father when he was president.
Stapleton is president of Marsh and McLennan Real Estate Advisors, Inc.
ADemocrat, Stapleton said in an interview he was a partner with Bush in the Texas
Rangers baseball team.
His wife,Dorothy, is a first cousin of Bush’s father, he said.
$ $ $
October 14, 2004
White House For Sale
CONTRIBUTORS AND PAYBACKS
Craig Stapleton worked in the White House of the first President Bush (who
appointed him to the Peace Corps board) and married the second President Bush’s
From 1982 until President George W. Bush nominated him as U.S. Ambassador to
the Czech Republic in 2001, Stapleton was president of Marsh & McLennan Real
Estate Advisors, the leasing unit of Marsh & McLennan Companies. Stapleton also
invested with Bush in the Texas Rangers ball team that made Bush a millionaire 15
Bush’s profits got a boost from the other partners, who gifted him extra equity in
the deal, and by local taxpayers, who paid $135 million for the team’s new stadium.
When the hospitality division of the Blackstone Group investment bank merged with
CUC International in 1997, CUC designated Stapleton as one of its directors on the
board of the new Cendant Corp. The following year, Cendant slashed its reported
earnings over the past three years by $650 million due to massive accounting
fraud at CUC.
With Stapleton, ex-Defense Secretary William Cohen and ex-Canadian Prime
Minister Brian Mulroney on its board, Cendant then settled investor lawsuits for a
record $3.1 billion.
That same year, Stapleton organized a 1998 Bush fundraiser that netted
As the No. 1 stockholder in Vacu-dry Co., Stapleton joined other board members in
June 1999 in a sudden decision to abandon its apple-drying business. The decision
wiped out 276 plant jobs and blindsided Sonoma County apple growers….
Stapleton’s longtime employer owns Marsh Mercer Consulting Group and Putnam
Investments. After Massachusetts regulators issued subpoenas in 2003 to probe
allegations that Putnam gave special privileges to elite mutual fund investors, the
company fired 15 employees for personally profiting from rapid-fire, “market-timing” trades in Putnam mutual funds and then fired Putnam CEO Lawrence Lasser.
In 2004, research firm Morningstar, Inc. ranked a college savings plan that Putnam
administers in Ohio as one of the five worst in the nation due to the excessive
fees that it reaps from these educational accounts.
Marsh & McLennanhad almost $2.5 million in federal contractsin fiscal 2002,
mostly with the Treasury Department.
Gwendolyn S. King – A director of Marsh & McLennan Companies since 1998 and
member of President Bush’s Commission to Strengthen Social Security.
From MMC’s web site:
Director of Marsh & McLennan Companies since 1998. Ms. King, age 60, is
president of Podium Prose in Washington, D.C. She was senior vice president,
corporate and public affairs at Peco Energy from 1992 until 1998. From 1989 to
1992, she served as commissioner of the Social Security Administration in the U.S.
Department of Health and Human Services. Ms. King is a director of Lockheed
Martin Corporation, Monsanto Company, Pharmacia Corporation and the National
Association of Corporate Directors and a member of the George Washington
University Council on American Politics.
Jeffrey W. Greenberg – From Business Wire – 11/18/99 – The Board of
Directors of Marsh & McLennan Companies(MMC) today elected Jeffrey W.
Greenberg CEO of the company.
Mr. Greenberg who continues as president of MMC, succeeds A.J.C. Smith, age 65,
who will remain chairman of the board until he retires from the company at its 2000
annual meeting. Mr. Smith will continue as a member of the company’s board.
Mr. Greenberg, age 48, was elected president of MMC in January 1999, at the same
time his planned succession to the CEO position was announced….
Mr. Greenberg began his professional career in 1976 at MMC, where he managed the
commercial aviation/aerospace insurance group.He then worked for 17 years at
American International Group . . . He rejoined MMC in 1995 and was named
chairman and chief executive officer of Marsh & McLennan Capital in 1996….
Jeffrey Greenberg is the son of American International Group head Maurice
$ $ $
October 15, 2004
NY Insurance Probe Casts Light
On Greenberg Family
By Joseph A. Giannone, Reuters
NEW YORK – New York Attorney General Eliot Spitzer’s far-reaching probe into
price-fixing and kickbacks in the insurance industry has cast a spotlight on three
members of one family who control almost a trillion dollars in assets.
Spitzer, who prompted reforms in stock research and mutual funds, announced a
lawsuit on Thursday against Marsh & McLennan Cos. The Boston-based company,
led by Chairman and Chief Executive Jeffrey Greenberg, were accused of price-fixing and misleading clients by accepting payments to steer business to certain
An investigator in Spitzer’s office told Reuters that the presence of three
Greenbergs in the probe, while “interesting and piquant”, is purely coincidental.
Still, the fact that three Greenbergs run insurance companies controlling more than
$700 billion in assets can be traced back to Hank Greenberg and his unshakable
place at the top of the industry.
People who have dealt with the 79-year-old have said he can be intimidating. Only
the second man to run the 85-year-old company founded in China, Greenberg is
famous for keeping tight control over every aspect of the far-flung operation….
Through the 1990s, analysts and investors expected Hank to turn the reins over to
his oldest son Jeffrey, now 53. But in the space of five years both Jeffrey and
Evan quit AIG to join rival insurance companies.
Jeffrey landed at Marsh & McLennan in 1995, ready to start an independent career
after 17 years in Hank’s shadow. His rise to the top of a company had been smooth
until the past two years, when Marsh & McLennan’s three divisions –Putnam
Investments, Mercer Inc. and now insurance broker Marsh– all came under fire
Five years later Evan, now 49, also quit AIG as president and chief operating officer
even after his father publicly affirmed him as the heir apparent. Evan set up shop
at rival Aceto start his own legacy. In March this year he was named chief
But now the family will need to brace itself for dealing with Spitzer, who on
Thursday vowed to pursue the investigation beyond Marsh & McLennan to other
companies and across the entire insurance industry.
Spitzer also made it clear he wants changes inside Marsh & McLennan’s executive
In a press conference on Thursday, Spitzer directed this comment to Marsh’s board
“I would suggest that you should think long and hard – think very long and very
hard – about the leadership of your company.”
* * *
[A Catbird Note: It was during Greenberg’s tenure with American International
Group (AIG) that Bill Clinton’s “personal piggybank,” Arkansas Development &
Finance Authority, did millions of dollars in questionable deals with AIG, including
helping finance the formation of Coral Reinsurance Company in Barbados.]
Marsh & McLennan Companies, Inc. (MMC) announced that John Sinnott, chairman
and CEO of Marsh Inc., the company’s risk and insurance services business, will
retire from the firm in July 2003.
Ray Groves, president and COO of Marsh Inc., will succeed Sinnott as CEO in
January and as chairman in July 2003.
Jeffrey Greenberg, chairman of MMC, noted, “Jack Sinnott’s leadership of Marsh
has been extraordinary. He guided the firm through the difficult operating
environment in the 1990s, the successful consolidation of two large mergers, the
September 11 attacks and their aftermath, and the changing marketplace for
commercial insurance. I’m pleased that Jack will continue as a special advisor to
MMC after he retires in July.”
Sinnott joined Marsh & McLennan in 1963 and has held various executive positions
with the company during his career….
Putnam’s former leader could receive more than
$32.7 million under an employment agreement
By Aaron Pressman, Bloomberg News
Putnam Investments’ former chief executive officer, Lawrence Lasser, who was the
second-highest-paid executive at a publicly traded mutual-fund company, may be
owed more than $32.7 million after Monday’s ouster amid fraud charges against the
company he ran for 18 years.
Lasser, who was paid $163 million over the last six years, signed an employment
agreement with Putnam in 1997 that included $15 million due when he retired,
according to filings with the Securities and Exchange Commission. An amendment to
the plan signed in 2000 created an additional $16.7 million payout due when the
agreement expired at the end of 2005.
Lasser, 61, was forced out in the industry-wide probe of improper trading. The SEC
and Massachusetts regulators have alleged that Putnam failed to prevent two
former money managers from taking advantage of inside knowledge about the
international funds they oversaw to generate quick profits for themselves at the
expense of clients.
Marsh & McLennan spokeswoman Barbara Perlmutter said the company, Putnam’s
parent, was reviewing Lasser’s contract to determine what was owed.
Lasser earned about five times the amount paid to his boss, Jeffrey Greenberg, the
chairman and CEO of Marsh & McLennan, during the last six years. Lasser declined
to comment, according to Putnam spokeswoman Nancy Fisher.
Lasser has been replaced by Charles Haldeman Jr., 55, of Haverford, Pa., Putnam’s
co-head of investments.
June 11, 2004
Lasser: Settles For $80M From Putnam
By Sophia Banay, Forbes
Lawrence Lasser, an ex-chief executive at Putnam Investments, settled with his
former employer for almost $80 million as arbitration proceedingscome to a close.
After heading up the mutual fund company for 18 years, Lasser lost his job last
November in the wake of an improper fund trading scandal which resulted in the
departure of several other executives.
The $80 million figure was $25 millionless than the compensation package
Lasser had hoped for.
The sum was disclosed by Marsh & McLennan, Putnam’s parent company, in a
regulatory filing on Thursday, in which the company claimed the payout would not
have “a significant impact” on earnings.
Ray J. Groves – Incoming chairman and CEO of Marsh, Inc.; director of
American Water Works Company, Inc., Boston Scientific Corp and Gillette Co.;
former director of Allegheny Technologies, Inc.
October 2, 2002
MARSH CHAIRMAN & CEO JOHN T. SINNOTT
TO RETIRE IN 2003
Marsh & McLennan Companies, Inc. (MMC) announced today that John T. Sinnott,
chairman and chief executive officer of Marsh Inc., the company’s risk and
insurance services business, will retire from the firm in July 2003.
Ray J. Groves, president and chief operating officer of Marsh Inc., will succeed
Mr. Sinnott as chief executive officer in January and as chairman in July 2003….
Commenting on Mr. Groves’ appointment, Mr. (Jeffrey) Greenberg said, “Marsh has
a deep bench of management talent, and the firm is especially fortunate to have an
executive as skilled and experienced as Ray Groves to succeed Jack. Ray has a
longstanding relationship with MMC and a profound understanding of professional
Mr. Groves has been a member of MMC’s Board of Directors since 1994, when he
retired from Ernst & Young after serving 17 years as chairman and chief executive
officer. He joined MMC’s management team as a senior advisor in August 2001 and
was appointed president and chief operating officer of Marsh Inc. in October
Seabury & Smith – The manager for Marsh Affinity Group Services.
We work hand-in-hand with our client organizations to create solutions to meet
their members’ specific insurance needs. You know your members and, with a 50-year-plus history in the insurance management industry, we know how to best
support them. Marsh Affinity Group Services specializes in the design,
administration and marketing of custom insurance programs and financial planning
services for client organizations and their members.
Through our family ties with Marsh & McLennan Companies, our history goes back
In 1905, Burrows, Marsh and McLennan was formed in Chicago.
The name was changed to Marsh & McLennan in 1906 after founders Henry W.
Marsh and Donald R. McLennan.
In 1949 the Seabury & Smith organization was formed. It was named after two
former Marsh & McLennan chairmen, Charles W. Seabury and Hermon D. Smith.
Albert H. Wohlers was founded in 1949 to specialize in the direct response/mass
marketing group insurance and their members. It was acquired by Seabury & Smith,
Inc. in 1997.
In 1949, Maginnis & Associates was formed and committed its efforts to marketing
insurance plans through association sponsorships in the health care industry. It was
acquired by Seabury & Smith, Inc. in 1998.
Headquartered in NYC, we have recently expanded our sales and service offices to
Chicago and Park Ridge, Illinois through our acquisitions of Maginnis & Associates
and Albert H. Wohlers.
These are in addition to our offices in Alexandria, Virginia; Brookfield, Wisconsin;
Columbia, South Carolina; Dallas, Texas; Des Moines, Iowa; Ft. Washington,
Pennsylvania; Honolulu, Hawaii; Minneapolis, Minnesota; Perry, Iowa; Phoenix,
Arizona; St. Louis, Missouri; San Francisco, California; Seattle, Washington and
* * *
Welcome to The State Bar of California
Approved Lawyers Professional Liability
It has never been easier to apply!
With our new, simplified application … most applicants can complete the process in
less than five minutes and get an actual quote, not just an estimate.
Marsh Affinity Group Services
160 Spear Street, 15th Floor
San Francisco, CA 94105
A service of Seabury & Smith, Inc., an MMC company.
Stephen Friedman – a senior principal of Marsh & McLennan Capital, Inc.
In 1994, Mr. Friedman retired as chairman of Goldman, Sachs & Co. He was co-chairman or sole chairman from 1990-1994, and from 1987-1990 he served as co-chief operating officer. He joined Goldman, Sachs in 1966 having previously held a
position as a law clerk to a federal district court judge and as an attorney in New
York City (1963-1966).
Mr. Friedman holds a B.A. from Cornell University (1959) and an LL.B. (Law Review)
from Columbia Law School (1962). He is a Trustee of Columbia University (Chairman,
Board of Trustees); Chairman of the Executive Committee of The Brookings
Institution; Trustee of Memorial Sloan-Kettering Cancer Center and member of
the Executive Committee.
He serves as a director of: Fannie Mae, Wal-Mart Stores, Inc., the National
Bureau of Economic Research and the Concord Coalition.
Mr. Friedman is also a member of the President’s Foreign Intelligence Advisory
Board and a director of In-Q-Tel, Inc. He is a former member of the Aspin/Brown
Commission on the Roles and Capabilities of the U.S. Intelligence Community and
the Jeremiah Panel on the National Reconnaissance Office.
* * *
STATEMENT BY WARREN B. RUDMAN,
CHAIRMAN OF THE PRESIDENT’S
FOREIGN INTELLIGENCE ADVISORY BOARD (PFIAB)
In response to the President’s request for the PFIAB to undertake a review of the
security and counterintelligence threat to the Department of Energy’s weapons labs,
I am pleased to announce that I have asked PFIAB Members Ms. Ann Caracristi and
Dr. Sidney Drell to join me on a special panel of the Board to conduct this inquiry.
In addition, the President(Clinton) recently has announced his intent to appoint Mr.
Stephen Friedman to the PFIAB, and I intend to ask Mr. Friedman to become a
panel member immediately upon his appointment.
Ms. Caracristi, as esteemed intelligence veteran, was Deputy Director of the
National Security Agency (NSA) from 1980 to 1982. . . . She currently serves on the
Board of Visitors of the Joint Military Intelligence College ans as a Consultant to
the NSA Scientific Board. Ms. Caracristi also sits on the Intelligence Oversight
Board, a standing committee of the PFIAB that advised the President on the legality
of US foreign intelligence activities.
Dr. Drell, a world-renowned physicist and arms control specialist, is Professor
Emeritus of Theoretical Physics at the Stanford University Linear Accelerator
Center and a Senior Fellow at the Hoover Institute, Stanford University….
Mr. Friedman, a highly-respected and successful businessman, was for years a
General Partner of Goldman, Sachs & Co., and retired as its Chairman in 1994. He
is Chairman of the Board of Trustees of Columbia University, Chairman of the
Executive Committee of the Brookings Institution, and a member of the Executive
Committee of the Memorial Sloan-Kettering Cancer Center.
Mr. Friedman served on the Commission of the Roles and Capabilities of the US
Intelligence Community and on the Jeremiah Panel, which reviewed the National
Reconnaissance Office. He currently is a Senior Principal of Marsh & McLennan
Capital, Inc. . . .
From The Money Men: . . . You’ve probably never heard ofWayne Berman, Peter
Terpeluk, Beth Dozoretz, or Alan Solomont. But you should. Certainly anyone who
wants to be president or a member of Congress has. They are among the key people
to see in the powerful world of political solicitors. . . . Whoever these people blessed
were the candidates who had the best chances to become our next president. The
ones they rejected didn’t have any chance at all….
~ ~ ~
The wall of fund-raiser Wayne Berman’s office was papered with photos of himself
glad-handing with virtually all of the big-name Republicans of the past two decades.
As a longtime lobbyist, Berman knew— and was liked and trusted by— everyone from
Ronald Reagan to Newt Gingrich and from George Bush to George W. Bush. They
respected him both for his political savvy and for his ability to raise money— as
much or more money, in fact, than almost anyone else in town.
It was no surprise, then, that a colleague of his, Scott Reed, interrupted my
interview with Berman one day to ask for a favor. Reed was a Washington player in
his own right; he had served as campaign manager for the 1996 Dole for President
campaign. But Berman had the access that Reed lacked. Reed was pushing a
“technical” amendment for a client that needed to be affixed to an appropriations
bill that was on the verge of completion in the Senate.
So Berman picked up the telephone and called the chairman of the Senate
Appropriations Committee, Ted Stevens of Alaska … A half hour or so later,
Stevens called back. I didn’t hear everything that was said, but it was obvious that
Berman’s reminder was all that was needed to insert the amendment into the bill….
* * *
From Journal Inquirer, 3/6/00, by Don Michak:
Treasurer Scandal’s Tentacles
SOME KEY PLAYERS in Connecticut’s Paul Silvester scandal also are embroiled in a
controversy over conflicts of interest and political favoritism in Texas under the
governorship of Republican presidential candidate George W. Bush.
At the center of the controversy are hundreds of millions of dollars of investments
by the University of Texas Investment Management Co., or UTIMCO, a tax-exempt, quasi-public corporation said to be the brainchild of former University of
Texas regent Thomas O. Hicks, the Dallas merchant banker who served as
UTIMCO’S first chairman….
In Texas, Donald I. Evans, finance chairman of the Bush presidential campaign, is a
Bush-appointed university regent, as is Tom Loeffler, a San Antonio lawyer and
former congressman. Evans is now chairman of the regents, who approved the
creation of UTIMCO in 1996.
Loeffler, one of Bush’s biggest financial backers in his 1988 gubernatorial race, also
has been a registered lobbyist for Hicks, Muse, Tate & Furst, and he joined Hicks
on the UTIMCO board in 1996.
Loeffler and several others involved in the UTIMCO controversy also are among the
people Bush calls his “pioneers,” supporters who each helped him raise at least
$100,000 in presidential campaign contributions.
The group includes R. Steven Hicks, the brother of Thomas Hicks; three people
whose investment partnerships had received UTIMCO funds; two partners in the law
firm that counsels UTIMCO; and Wayne L Berman, a Washington lobbyist…
Last fall … Berman, who is finance chairman of the national Republican Governors
Association, “voluntarily” suspended his activities on behalf of the Bush campaign,
pending the results of the continuing federal investigation of Silvester’s crimes in
Connecticut. . . .
Berman is a central figure in the Silvester scandal, having apparently “bundled”
campaign cash to Silvester, including a contribution from another big Republican
fundraiser and his co-chairman of the governors association’s Finance Committee,
Washington lobbyist Peter Terpeluk.
Three of Berman’s colleagues, among Bush’s “pioneers” — corporate chieftainsMaurice R. Greenberg of American International Group, Herbert Collins of Boston
Capital Partners, and Thomas Foley of … NTC Group— also helped bankroll
Silvester’s failed election bid.
And Berman hired both the former treasurer and his closest aide soon after
Silvester’s narrow 1998 election defeat. A survey of the treasury’s business
partners last fall also showed Berman to have collected$1.5 million in “finder’s
fees” on two pension fund deals he helped broker with Silvester….
The bulk of Berman’s fees— $1 million … came from The Carlyle Group, a
Washington merchant bank run by several prominent Republicans in the Reagan and
Bush administrations, including former Secretary of Defense and CIA Deputy
Director Frank Calucci, Secretary of State James A. Baker, and Office of
Management and Budget Director Richard G. Darmon.
Former President Bush also advises one of Carlyle’s investment partnerships, and
the firm reportedly has paid him for speeches…
The UTIMCO controversy and the Silvester scandal also are both marked by the
involvement of corporate and legal elites whose Republican pedigrees trace back to
the Nixon administration.
The most obvious link is Thayer Capital Partners, an investment group headed by
Frederic V. Matek, the former head of personnel in the Nixon White House, deputy
director of Nixon’s Committee for the Re-election of the President, and
president of Marriott Hotels, Northwest Airlines, and Coldwell Banker
Commercial Group. . . .
Silvester invested $75 million with Thayer, and UTIMCO initially approved a $20
million commitment, but the Texans backed out of their deal…
In Connecticut the Carlyle payment to Berman amounted to 1 percent of Silvester’s
$100 million investment in Carlyle European Partners. Thayer Equity Advisor IV LP,
to which Connecticut committed $75 million, arranged to pay Merrill Lynch & Co.
$2 million andNorth Cove Ventures, a company organized by former House
Majority Leader William DiBella, a Democratic power broker and confidant of
Meanwhile, Silvester, who last September pleaded guilty to racketeering and money
laundering as the key figure in the kickback scheme involving such fees, faces a
federal prison term of as much as six years.
The U.S. Securities and Exchange Commission also has launched a broad
investigation of the financial transactions that Silvester authorized during his 17-month tenure as treasurer. Two months ago it sought records concerning his
private-equity investments as well as his hiring of investment managers and bond
* * *
From The Governor’s Gusher:The Bush Profiteers – 100 Donors Who Enjoy
Hands-Off, Handout Government…
42. Wayne Berman (Washington, DC): $16,000
Berman is a lobbyist and ex-GHWB assistant secretary of commerce. An ex-Connecticut state treasurer recently pled guilty to corruption charges involving
politicians and lobbyists who took “finder’s fees” from firms to which he gave
contracts to manage state pension funds. Berman reportedly landed a $900,000 fee
and hired the corrupt ex-treasurer as a lobbyist.
After reports of this scandal, Berman has reportedly suspended Pioneer fundraising,
but the GWB campaign has not returned the $100,000 or more he raised….
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