Spying scandal plagues Marsh & McLennan's new broom

The new boss of ailing insurance giant Marsh & McLennan is facing questions about what he knew of an alleged spying scandal at the subsidiary he ran, which has led to two senior executives and three other staff being arrested.

Michael Cherkasky took over as chief executive of the group on Tuesday after previous chief Jeffrey Greenberg resigned in the wake of the investigation into allegations of price-fixing and corruption.

Mr Cherkasky, who ran Marsh Mac's investigations business, Kroll, is seen as a new broom who will get rid of the secrecy and dubious practices which have led to the group being hit by civil charges from the New York Attorney General, Eliot Spitzer.

However, only a day after taking up the post, the Brazilian offices of Kroll were raided by armed police investigating allegations that the operation spied on members of the Brazilian government and executives at Brasil Telecom.

The joint bosses of Kroll Brazil, Eduardo Gomide and Vender Giordano, and three other staff were arrested. They are still being held. The accusations go back to the early part of this year, before the $1.9bn (£1bn) purchase of Kroll by Marsh Mac.

A Kroll spokeswoman said that the first Mr Cherkasky knew of the alleged spying was when a Brazilian newspaper printed accusations in July. "Our office heads in Sao Paulo report to the regional managing director for Latin America, which reports to the Consulting Services Group," she said.

Kroll has taken out adverts in the Brazilian press denying the accusations, which relate to work it did for a Brazilian bank