Business Analysis: The father, the sons, and an insurance scandal that has rocked America

How a leading business family was dragged into Eliot Spitzer's commissions inquiry
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The Independent Online

If America's powerful Greenberg family, which dominates the US insurance industry, are planning to gather to celebrate Thanksgiving next month, conversation over the dinner table could be somewhat gloomy.

If America's powerful Greenberg family, which dominates the US insurance industry, are planning to gather to celebrate Thanksgiving next month, conversation over the dinner table could be somewhat gloomy.

Jeffrey Greenberg, the chief executive of the giant insurance broker Marsh & McLennan, is fighting an $800m lawsuit brought by New York's attorney general, Eliot Spitzer. Shares in Marsh fell further yesterday, leaving its value nearly cut in half since Mr Spitzer's case was launched last week, and calls are growing for Mr Greenberg to step down.

His father's company, American International Group (AIG), has been named in the suit, which alleges Marsh masterminded a scam with certain insurance companies to cream off millions of dollars from customers in inappropriate fees.

Ace, the Bermuda-based insurer, is also named in the suit. Ace's position has begun to look difficult, with reports that the pugnacious government lawyer has e-mails from Ace employees acknowledging its dealings with Marsh could be seen as anti-competitive. And the chief executive of Ace who must investigate whether his underlings did carry out actions which could breach antitrust laws is, strangely enough, another family member. Evan, the brother of Jeffrey and the son of the AIG chief, Maurice, or "Hank", took the top job at Ace earlier this year.

If the stock market was shocked by the wide-ranging nature of Mr Spitzer's allegations, analysts were surprised to find America's first family of the insurance sector so firmly in the firing line. While the suit also names other insurers outside the close-knit clan, and could be widened even further, it seems likely that the Greenbergs will need to use all of their formidable reputations to put this scandal behind them. Several analysts say that they may not be able to, hastening the retirement of the formidable Mr Greenberg, 79, after 36 years at the helm of AIG, and possibly removing altogether the Greenberg name from the ruling ranks of America's insurance industry.

Working together to rebut the allegations could be tricky for the Greenbergs. It was executives at AIG and Ace who scrambled to help the investigators build a case against Marsh, in the hope of winning generous treatment from prosecutors. But they have not escaped. Three executives, two from AIG and one from Ace, have pleaded guilty to having taken part in the alleged bid-rigging scheme. And their co-operation could leave Marsh exposed to the full onslaught of Mr Spitzer, who is known for his liking of targeting high-profile companies and pursuing them a highly public way until they agree to a hefty financial settlement.

When asked at an AIG meeting on Saturday, two days after the allegations were made, the company's boss reportedly said of the difficulties facing the broker's chief executive: "Of course I'm sad. He's my son". It was an expression of familial warmth not often seen from the famously gruff elder Mr Greenberg, whose position in America's corporate society ranks him alongside Warren Buffett and General Electric's former chairman Jack Welch, and who is one of the clique of powerful business supporters of President George Bush.

But Mr Greenberg is used to things not going smoothly within his family. He had been planning to hand over the family business - AIG has 50 million customers in 130 countries - to Jeffrey when he stepped down. That plan went off the rails when his 53-year-old son, who had worked his way up the ranks at AIG, quit without warning to join Marsh. Another plan to hand over to Evan, 49, also backfired as he too suddenly abandoned a career at his father's company four years ago.

According to observers, it was the exacting standards of Mr Greenberg - who took part in the Normandy landings in the Second World War - which prompted his sons to cut the ties.

Mr Spitzer's case will only raise the stakes further about who will succeed to the top job at AIG. While its super-fit chief executive - Mr Greenberg is keen on exercise and reportedly has a gym in the company's private jet - is showing no signs of slowing, the business has found itself mired in controversieswhich are making shareholders restive. Even before last week, AIG was in the sights of government investigators. The Securities and Exchange Commission said last month it was considering bringing civil charges against AIG for allegedly helping PNC Financial Services hide underperforming loans.

Before that, AIG was entangled in a separate investigation by the SEC into whether it helped Brightpoint, a distributor of mobile-phone data, hide $12m in losses through an unusual insurance contract. The SEC fined AIG $10m, though the company did not admit any guilt.

At Marsh, Jeffrey Greenberg is under even more pressure. It is on his watch that Marsh's subsidiary fund management company, Putnam Investments, was the first money manager to be charged with the controversial trading practice of market timing. And earlier this year another Marsh company, Mercer, admitted it had not given the board of the New York Stock Exchange the full picture about the $140m pay package of its chairman, Dick Grasso.

The latest controversy under the spotlight allegedly involved two types of inappropriate behaviour. One of the areas targeted - "contingent commissions" - is widespread in the insurance industry and is seen by many as perfectly legitimate as long as the commissions are disclosed to customers. The commissions are paid by insurers to brokers on the basis of the volume of business directed their way, and also on how profitable that business is likely to be.

The other subject of the investigation - whereby a broker persuades a customer to take out a particular policy by comparing it with bogus, higher quotes from other underwriters - is more controversial. The Spitzer lawsuit alleges Ace and AIG were complicit in bid rigging with Marsh, but it suggests that there were plenty of other insurers outside the clan who also took part.

While Mr Spitzer has lashed out at the highest echelons of Marsh's management, saying its senior executives are "not a leadership I will talk to", he has not accused Jeffrey Greenberg of orchestrating the alleged scam. He has also chosen not to highlight the personal connection between the two insurance companies and the broker.

Yet if one of the Greenberg dynasty is tainted by the outcome of the Spitzer case, it is likely to hurt the others, at a time when the influential family has already lost much of the business world's reverence.

The Greenberg Dynasty

Jeffrey Greenberg

Chief executive of Marsh & McLennan since 1999 and its chairman since 2000, Jeffrey Greenberg, 53, joined the insurance broker in 1995. Before that he was at AIG. On the day Hurricane Andrew hit Florida, he caused embarrassment by calling the storm an "opportunity to get price increases".

Maurice 'Hank' Greenberg

Born in 1925 and nicknamed Hank after an American sports legend - the Detroit Tigers baseball player who came close to breaking Babe Ruth's home runs record - Hank Greenberg built his own record as one of America's iconic long-standing businessmen. Since joining in 1960, he transformed AIG from a small holding company with scattered overseas holdings to the largest insurance company in the world, with $81.3bn in revenues and $9.3bn in earnings last year.

Evan Greenberg

The younger son of Hank, 49-year-old Evan also learned the insurance trade at AIG. He headed up its Japanese and Korean business by 1991 and became AIG president in 1997. He quit without warning in 2000, not naming where he would go. Evan joined Ace in 2001.