The two underwriters, who had been suspended by the company and have since left, have admitted to following and executing directions from another broker to submit false bids that were designed to simply provide the appearance of competition when in fact the ultimate winner of a bid had already been chosen, according to the Associated Press. John Keenan and Edward Coughlin both pleaded guilty to misdemeanors under New York’s ‘Donnelly Act’, which prohibits agreements that unreasonably restrain trade and competition, according to the AP.
The two underwriters dealt exclusively with Marsh Global Banking, a subsidiary of March & McLennan Cos., the original subject of Spitzer’s investigation. Both have agreed to cooperate, with a state Supreme Court Judge asserting that the severity of their sentence, possibly a year in jail and a $1,000 fine, would depend on their level of cooperation. However, attorneys for Coughlin said that their client did not believe he was engaging in an illegal act, according to the AP.
With the two underwriters’ involvement, Zurich now finds itself alongside American International Group (AIG), ACE Insurance Co. of North America, The Hartford, and Munich American Risk Partners as a company that has been implicated in the scandal. Executives at AIG and ACE have also pleaded guilty to participating in the illegal conduct.
The insurance industry scandal started in mid-October with Spitzer’s investigation into insurance-giant Marsh (See Spitzer Takes On Contingent Commissions ). Spitzer accused the firm of steering clients to insurers for lucrative payoffs under long-standing agreements. The firm collected $800 million in so-called contingent commissions in 2003 alone, investigators said. Spitzer also accuses the company of soliciting rigged bids for insurance contracts. The practices go back to at least the 1990s, he said.