MERCER
CONSULTING
Sightings from The Catbird Seat
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August 31, 2008
A Not-Yet-Reported
Palin "Scandal"
I don't know if this will qualify as a scandal but I am pretty sure you are reading this here first
- Sarah Palin endorsed a contingency lawsuit against one of the State of Alaska's
pension consultants after the state legislature refused to bankroll the legal effort:
The state filed a $1.8 billion malpractice lawsuit Thursday against a consulting firm it claims is a reason Alaska's public employee pension system is in crisis.
The state alleges that Mercer Human Resource Consulting Inc. gave negligent advice and even made basic math errors. Mercer was the state's actuary company and advised Alaska on its public employee and teacher retirement systems for nearly 30 years until being replaced in 2005.
"Fully aware of the billions of dollars at stake, Mercer nevertheless made fundamental errors in methodology and even in basic calculations, and failed to assign competent, experienced personnel to work for the plans," the state charged in its lawsuit.
The state claims Mercer badly miscalculated the growth rate of health care costs. Public employers used Mercer's actuarial information in deciding how much they should contribute to the pension funds.
...
Gov. Sarah Palin asked the Legislature this spring for $12 million to pay for the lawsuit. Lawmakers refused to give her the money.
"At that time my concerns had not been answered as to the probability of prevailing in the lawsuit," said Anchorage Republican Rep. Mike Hawker, a member of the Finance Committee.
The state has instead negotiated a contingency agreement with the law firm it retained to assist in the suit. The firm will get a percentage of whatever award Alaska receives after costs, ranging from 25 percent if the award is up to $200 million to 5 percent if Alaska prevails for more than a billion dollars.
That New York firm -- Paul, Weiss, Rifkind, Wharton and Garrison -- is also paying the Juneau firm of Lessmeier and Winters to help.
Hawker said the contingency seems to be a responsible way for the state to pursue what could be challenging litigation.
Sitka Republican Sen. Bert Stedman also said he's comfortable with that approach to the suit.
"Clearly there's some question as far as the quality of work done by Mercer," said Stedman, co-chair of the Senate Finance Committee.
The lawsuit was filed in Alaska Superior Court in Juneau.
Here is a bit of the Google-cache of a gone-but-not-forgotten State of Alaska announcement:
State Files Suit Against Mercer Seeks $1.8 Billion in Damages
December 6, 2007, Juneau, Alaska - Governor Palin today announced the filing of a lawsuit by Attorney General Talis Colberg and the Department of Law against Mercer (US) Inc., the former actuary for Alaska’s Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS) pension plans. The lawsuit seeks more than $1.8 billion in damages from Mercer for mistakes in calculating the pension plans’ expected liabilities, including mistaken actuarial assumptions and methods about future health care costs, and basic mathematical and technical errors.
“I am committed to aggressively pursuing the ’healing’ of Alaska’s retirement plans so the burden of the several-billion-dollar unfunded liability does not fall on the backs of ordinary citizens. Filing this lawsuit is an important step in that process,” Governor Palin said.
Here is other coverage. If a PACER maven could track that suit through what I presume is the Federal Court in Juneau that would be lovely. I am reasonably certain the suit is still alive because I heard about it at a picnic this afternoon from a Mercer employee. Now, a bit of disclosure - my source probably would not have been a Palin fan even absent the lawsuit; OTOH, he was explicit in saying he had no idea whether she was involved with the suit. From the reporting she was sufficiently involved to let herself get quoted backing it.
So what does it mean? Well, perhaps Republican disdain for trial lawyers and speculative contingency lawsuits is a sometime thing. Superficially this suit appears to me to be yet another public entity that would prefer to flail about and sue someone rather than than admit that they deliberately under-funded their pension plans in order to avoid raising taxes or cutting services. But I say that as a Jersey guy where that sort of behavior was the norm; maybe Alaska has a legitimate beef here. Maybe. In any case, Ms. Palin would not have been governor during the period of underfunding, but she could have blown the whistle on the lawsuit.
This is by no means a major scandal even if the lawsuit is substantially without merit. Let's file it under "Troubling". By way of comparison, file this under "How does he keep a straight face?"
Posted by Tom Maguire on August 31, 2008 | Permalink
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A Not-Yet-Reported Palin "Scandal"
August 13, 2008
Retiree fund
down $150.2M
Advertiser Staff
The market value of assets in the Hawai'i Employees' Retirement System slid by $150.2 million during the latest quarter as the pension fund had a negative return on investments because of turbulent financial markets.
The pension plan had a negative 1 percent return during the April-June period, a better performance than expected — and better, too, than the negative 1.4 percent median returns of similar plans.
The pension plan ended the quarter with $10.8 billion in assets.
The end of the quarter also marked the end of the fiscal year for the ERS. During the second half of the 12-month period the ERS had negative returns; it ended its fiscal year with assets lower by $730.1 million.
The pension plan provides retirement benefits for state and county workers and employs investment advisers to manage its portfolio of stocks, bonds, real estate and other investments as it tries to achieve an annual return of 8 percent.
For the fiscal year, the ERS had a return of negative 3.4 percent. Its peer plans had a median return of negative 4.4 percent during the period.
Even with the decline in assets the ERS has enough money for now to provide retirement benefits for its more than 100,000 members.
For more, GO TO > > > The Great Nest Egg Robberies - Part II; CV05-00030-Farmer vs. Harmon - Witness: Yukio Takemoto; Linda Lingle; David C. Farmer
< < < FLASHBACKS < < <
November 8, 2004
Pensions seek consultant disclosure
By Yamil Berard, Star-Telegram Staff Writer
Jack Silver was a teacher at an inner-city Chicago school hobnobbing with the managers of multibillion-dollar funds.
In fact, investment managers were paying $50,000 to "meet people like me," said Silver. "Now, that's a hell of a lot of money."
Why Silver? Because he was on the pension board for teachers in Chicago. Its consultant put on the seminars, raking in the admission fee from managers who might be seeking a piece of the fund's $10 billion investment pie.
That made Silver wonder: Did attending the seminars help managers win the consultant's recommendation? And was the consultant doing other business with managers It hyped to the pension board?
Those are questions that some public pension officials have begun asking since a handful of pension funds around the country have made discoveries that left them queasy.
They found that the consultant who guided their every move -- telling them how to divvy up investment dollars which investment managers to hire and fire, and whether the fund was getting socked with excessive trading charges'-- was making money from both sides of the table.
Now there's a growing clamor for public pension plans to demand that consultants put their cards on the table and disclose financial incentives. Some Texas plans have taken steps to require disclosure, the Star-Telegram found in a survey of more than a dozen plans.
But others still have not, despite what some critics see as the potential for conflicts of interest. Their concerns:
• Some consultants recommend investment managers that are a branch of their own company. In California, a Santa Clara Valley pension board fired investment manager Putnam in February after the indictment of two people for securities fraud. Putnam and the plan's consultant, Mercer Investment Consulting, are both part of Marsh & McLennan Cos. The New York attorney general's office is examining whether Marsh rigged insurance bids, and whether Mercer steered clients to Marsh insurance products....
Continued in... “The Great Nest Egg Robberies”
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January 13, 2003
State finds new pension savings administrator
By Johnny Brannon, Honolulu Advertiser
The state has quietly dumped the longtime administrator of its Deferred Compensation Plan for public employees and selected another firm owned in part by a parent company targeted in a major fraud investigation.
The state has put its new contract with CitiStreet LLC on hold, however, because of unrelated protests filed by other bidders, including Hawaii Benefits Inc., which has managed the plan for more than 20 years.
CitiStreet is a joint venture half-owned by Citigroup, one of the top lenders to collapsed energy giant Enron. Members of the U.S. Senate Governmental Affairs Committee have alleged that Citigroup helped Enron hide its massive debt problems from investors, and an investigation is ongoing.
The deferred compensation plan administrator manages the enrollment and record keeping for money that public employees elect to have deducted from their paychecks and invested for future needs such as retirement. There are more than 43,000 participants employed by the state and the counties of Hawai'i, Kaua'i and Maui.
The administrator proposes investments, but a state board of trustees makes the final selections of investment options and monitors their performance.
A petition that sharply criticizes Citistreet has begun circulating among some state employees, which asks the trustees to reconsider its award because of the fraud probe and other matters.
Acting board president Diana Kaapu did not return repeated calls. She recently issued a notice to clarify key issues related to the choice "because inaccurate and misleading information concerning actions" by the board had "been disseminated recently."
The selection was made in October under the tenure of former board president Davis Yogi, who now serves as state airports director. He said the seven trustees considered a range of factors in making their selection, such as the variety of services offered and how the firm would educate participants about their investment options.
Yogi said the trustees voted anonymously, and declined to say whether he was satisfied with the selection that was made. He said the trustees were aware of the fraud allegations involving Citigroup and made numerous inquiries about its potential impact on CitiStreet.
The current five-year contract with Hawaii Benefits was worth about $16 million, and had been extended for one year at about $3.3 million, he said.
The administrator contract was put out to bid because Hawaii Benefits' contract expires on June 30. The contract is paid for by plan participants through administrative fees, rather than by the state.
In a letter to the board, Hawaii Benefits president Mike Moss said he was "disappointed and perplexed" that his firm was not chosen to continue as plan administrator. He said the company enjoyed "the highest level of participant satisfaction."
He said the company had been given no indication that the board was dissatisfied with Hawaii Benefits and requested an opportunity to satisfy any changed expectations of board members.
The other company challenging the award is Great-West Life and Annuity Insurance Company/Benefits Corp.
The firm believes CitiStreet will unfairly be able to use a subsidiary to handle its marketing, Great-West senior vice-president of government marketing Gregg Seller said.
That would give the subsidiary access to plan participants' addresses and phone numbers to market other products that had not been approved by the trustees, he said.
He said the board had also refused to accept a written response to a clarification to the bid Great-West submitted.
"We weren't modifying the proposal, just explaining how it would work," he said.
Representatives from CitiStreet did not immediately return calls.
Many members of the Hawai'i Government Employees Association have called the union's headquarters to inquire about the new plan administrator and ask a wide variety of questions, HGEA deputy executive director Randy Perreira said.
"This is retirement money for these people, so certainly we would hope their money is safe," he said.
The union was apprised of the new contract but was not involved in the selection process and has little information about the challenges that have been lodged, he added.
Citigroup's links with Enron are being probed by the Senate panel's Permanent Subcommittee on Investigations.
"Enron's deceptions were shocking, and equally shocking was the extent to which respected U.S. financial institutions like Chase, Citigroup and Merrill Lynch helped Enron carry out its deceptions," the subcommittee's head, Sen. Carl Levin, D-Mich., said in a written statement.
Citigroup announced earlier this month that it would establish a $1.5 billion reserve to pay for litigation and settlements.
For more on Citigroup, GO TO > > > Vampires in the City
* * *
From Honolulu Star-Bulletin, 9/12/97: Ex-Justice Nakamura dies: . . . Former labor attorney and state Supreme Court Justice Edward Nakamura, widely regarded as a man of integrity unafraid to criticize abuses of power, died early yesterday at Queen’s Hospital after undergoing open heart surgery. . . .
Even after retirement in 1989 ... Nakamura remained an influential figure. He played a key behind-the-scenes role in the crafting of the Aug 9 “Broken Trust” opinion piece in the Star-Bulletin that spurred Gov Ben Cayetano to order an investigation of the $10 billion Bishop Estate . . .
“It was only after three meetings with Ed over pancakes at the Like Like Drive Inn that I started to see ‘the whole picture,’” said University of Hawaii law Professor Randall Roth, one of the five authors of the essay. “Without his guidance, the project might never have gotten off the ground.”
Nakamura provided insight into how things worked. “It was an insider’s look at the Democratic power structure,” Roth said. “He was fed up with the way things have evolved. He felt some people in recent years betrayed what the ideals of the Democratic revolution (of the 1950s) were all about. They were watching out for themselves rather than the ideals of their predecessors.”
Roth added: “In his quiet but firm way, Ed always followed his conscience, even when that was certain to displease powerful people.”
In 1993, Nakamura opposed then-Gov. John Waihee’s nomination of attorney Sharon Himeno to the state Supreme Court, which drew fire because of her political connections and because her law firm represented her father, developer Stanley Himeno, in a questionable business deal involving the state pension fund.
Nakamura advised attorney who publicly opposed Himeno’s nomination, which was rejected by the Senate.
Resigned from Board. That same year, Nakamura testified in the Senate’s special investigation into the management of the state pension fund. He said that during his tenure as a fund trustee, a golf course deal was pushed by the then-chairman of the Employees’ Retirement System, Gordon Uyeda, that would have provided a financial windfall for Uyeda’s friend, developer Rodney Inaba.
When the pension board voted to purchase the Wood Ranch Golf Club in Simi Valley, Calif., Nakamura resigned in protest.
But the $31 million deal quickly unraveled with Waihee apparently playing a role in getting trustees to abandon the project. . . .
Retired state appellate Judge Walter Heen, another co-author of the “Broken Trust” opinion piece, said: “Justice Nakamura will stand out in the history of Hawaii as one of its finest legal minds and one who possessed the highest concern for principle. His opinions reflect both those characteristics.” . . .
Nakamura’s nephew, attorney James Kawashima ... added: “He was very principled and always ethical. Sometimes that’s rare in people and lawyers both.”
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From Honolulu Star-Bulletin, 3/11/97: Nomura scandal spurs isle concern. . . . Trustees of the $7 billion state Employees’ Retirement System plan to discuss their dealings next month with Nomura Capital Management Inc. whose Japanese parent company, Nomura Securities Inc., is embroiled in a major scandal over unauthorized trading.
Stanley Siu, the ERS’s administrator, said that Nomura Capital executives in New York called him yesterday to assure him that questionable trades do not involve the retirement system’s investments. ... Nomura Capital manages about $185 million of ERS’s investments in Asia ...
Siu noted that Nomura Capital’s investments for the ERS in Asia declined 3.8% in 1996 due largely to Japan’s sagging stock market....
For more, GO TO > > > Predators in Paradise; CV05-00030-David C. Farmer, Trustee, Office of the U.S. Trustee vs Harmon - Witness: Yukio Takemoto
July 17, 2006
Texas Regulators: Houston ISD and
Benefits Firm Took Part in Illegal Deal
The Houston Independent School District and its employee benefits firm illegally profited from a deal they have with three other school districts, according to the Texas Department of Insurance.
New York-based Mercer Human Resource Consulting has been paid at least $20 million since 2000 for managing the school district's healthcare plan, which covers 20,000 employees, the Houston Chronicle reported July 13 in its online edition.
The state insurance agency said the school districts in Dallas, Aldine and Katy bought into Houston's employee benefits consortium with Mercer after HISD promised it would hold down benefit costs by pooling their buying power and avoiding costs associated with competitive bidding.
"However, because each ISD is separately rated by carriers, those ISDs do not receive lower benefit rates by being incorporated into a larger group,'' the insurance department wrote in a letter it sent to Mercer.
Mercer officials denied any wrongdoing.
"We are evaluating the letter in detail, but we note it says that the agency is 'considering' action, not that it has made that determination,'' the statement said. "We believe we are in compliance with relevant Texas law and regulation and that this matter has been driven by a disgruntled competitor which has had no success in its repeated efforts in civil litigation.''
Lawyers for a competing firm suing Mercer hope to force the company to pay back at least $40 million to the Houston, Dallas, Katy and Aldine school districts.
State regulators also determined Mercer is operating in Texas without the required consulting license.
Houston school board Trustee Larry Marshall said the insurance department's findings are surprising.
"I'm stunned,” he said. "Little did we know that this web was in existence. ... I think we probably need an impartial look at this.”
www.insurancejournal.com/news/southcentral/2006/07/17/70470.htm
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www.kycbs.net/Mercer-Texas-Case.htm
MEET M. MICHELLE BURNS
M. Michele Burns, age 50, is chairwoman and chief executive officer of Mercer. Ms. Burns joined MMC as executive vice president on March 1, 2006, assumed the position of chief financial officer of MMC on March 31, 2006 and moved to her current position with Mercer on September 25, 2006.
Prior to joining MMC, Ms. Burns was executive vice president and chief financial officer since May 2004, and chief restructuring officer, and chief financial officer since August 2004, of Mirant Corporation, an energy company, following the company’s bankruptcy filing in 2003.
Prior to joining Mirant, she was executive vice president and chief financial officer of Delta Air Lines, Inc. from August 2000 to April 2004. She held various other positions in the finance and tax departments of Delta beginning in January 1999. Delta filed for protection under Chapter 11 of the United States Bankruptcy Code in September 2005.
M. Michelle Burns, currently a director of Wal-Mart Stores, Inc. and Cisco Systems, Inc., she previously served as executive vice president.
For Wal-Mart Stores, Inc.:
Cash Compensation (FY December 2006)
Salary: $625,000
Bonus: $750,000
Latest FY other long-term comp. $945,832
Total: $2,320,832
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From wikipedia:
WAL-MART
Financial
In 2006, Wal-Mart was 67th most profitable corporation (profits divided by total revenue), behind retailers Home Depot, Dell, and Target, and ahead of Costco and Kroger. For the fiscal year ending January 31, 2006, Wal-Mart reported a net income of $12.178 billion on $344.992 billion of sales revenue (3.5% profit margin). For the fiscal year ending January 31, 2006, Wal-Mart's international operations accounted for about 20.1% of total sales. As of Mar 06, 2008, net sales for the 4-week period ending Feb 29, 2008 was $29.1 billion, up 8.9% from the previous year's results.
Governance
Wal-Mart is governed by a fifteen-member Board of Directors, which is elected annually by shareholders. S. Robson Walton, the eldest son of founder Sam Walton, serves as Chairman of the Board. Lee Scott, the Chief Executive Officer, serves on the board as well. Other members of the board include Aída Álvarez, James Breyer, M. Michele Burns, James Cash, Roger Corbett, Douglas N. Daft, David Glass, Roland A. Hernandez, Allen Questrom, Jack Shewmaker, Jim Walton, Christopher J. Williams, and Linda S. Wolf.
Notable former members of the board include Hillary Clinton (1985–1992) and Tom Coughlin (2003–2004), the latter having served as Vice Chairman. Clinton left the board before the 1992 U.S. Presidential Election, and Coughlin left in December 2005 after pleading guilty to wire fraud and tax evasion for stealing hundreds of thousands of dollars from Wal-Mart. On August 11, 2006, he was sentenced to 27 months of home confinement, five years of probation, and ordered to pay $411,000 in restitution.
http://en.wikipedia.org/wiki/Walmart
April 21, 2006
Public companies find ways to
perk up their senior executives
by Harold Nedd, Pacific Business News
Judging by the latest batch of annual reports, some Hawaii public companies aren't bashful about the perks they give their executives on top of their salaries, bonuses and stock awards.
Beyond the basics like car allowances and country club memberships, some companies are doing everything from reimbursing senior executives for tax help to providing directors with discounted rates on million-dollar mortgage loans.
While impressive by local standards, compensation experts describe the list of perks laid out in charts in corporate proxy statements as fairly unremarkable, especially when compared with perks like access to the corporate jet at some large Mainland companies.
Under rules set down by the Securities and Exchange Commission, a company does not have to report any of the perks it gives to senior executives as long as the total value does not exceed $50,000 a year. That limit will drop to $10,000 by next year's proxy season.
"That's when you'll see the lavish perks jump out," said Janet DenUyl, who leads the executive benefits unit at New York-based Mercer Human Resource Consulting. "But there is nothing surprising about the perquisites in Hawaii. They all seem fairly common. They enhance your ability to do your job."
Hawaiian Holdings Inc., the parent company of Hawaiian Airlines, disclosed in the company's corporate filing it had given a discretionary "expense allowance" of $30,000 to new Executive Vice President and Chief Financial Officer Peter R. Ingram, who was appointed in November 2005.
That was in addition to a $5,000 housing allowance for Ingram and $24,245 to cover his relocation expenses.
When Maui Land & Pineapple Inc. (see The Vultures in Maui Land & Pine) hired Thomas H. Juliano as an executive in June 2005, he received a $129,808 salary. But he didn't have to spend much of that on moving expenses or state taxes. The company gave him $30,000 to cover moving expenses, as well as $20,548 to pay his taxes, according to the company proxy.
Executive Vice President Brian C. Nishida was able to increase his $241,303 salary by selling back to the company accrued vacation that yielded him an extra $18,561 in 2005.
At Hawaiian Electric Industries Inc., parent company of American Savings Bank, two directors jumped on a loan perk that the company has decided to stop offering after June 30 to directors who are not employees.
Shirley Daniel, the University of Hawaii accounting professor who joined the board in 2002, is paying 4 percent interest on a $1.5 million mortgage loan, and Victor H. Li, a director since 1988, is paying a 3 percent rate on a $357,218 mortgage loan, according to a corporate filing.
In its proxy statement, Bank of Hawaii reported paying near ready-to-retire Vice Chairman Alton T. Kuioka a $750,000 bonus to stay with the company, although his role has been reduced. The retention payment pushed his total compensation in 2005 to $2.7 million, second only to CEO Allan Landon, whose total pay came to $3.9 million.
Also last year, Central Pacific Financial Corp. spent $59,548 on country club memberships for its five highest-paid executives, including CEO Clint Arnoldus, whose base salary was raised 5 percent to $630,000 on Jan. 1, according to the company proxy.
The company paid $45,600 for all of their car allowances, as well. That was on top of a $100,000 retention bonus paid to Vice Chairman Blenn A. Fujimoto and Executive Vice President Denis K. Isono.
December 8, 2006
Mercer accused of $80M risk
Atlanta Business Chronicle - by Ryan Mahoney
The Atlanta office of Mercer Investment Consulting Inc. conned a union pension fund into adopting a risky investment strategy that caused it to lose $80 million during the turn-of-the-century stock market crash, a new lawsuit charges.
Mercer, a unit of insurance broker Marsh & McLennan Cos. (NYSE: MMC), is the investment adviser for some of the nation's largest retirement plans, from Bank of America Corp. (NYSE: BAC) to the U.S. government.
In a suit filed Nov. 22 in Fulton County Superior Court, the New Orleans longshoremen's pension fund says Mercer in 1998 recommended its board of trustees invest 60 percent of its assets in equities and 40 percent in fixed-income funds in order to achieve an annual return of at least 8.5 percent and avoid a funding shortfall over the next 10 years.
At the time, the fund's assets were evenly split between equities and fixed income, a strategy intended to produce a 7.5 percent annual return.
The board followed Mercer's advice, and initially could not fault the results. The fund's market value jumped from $359 million in September 1997 to $396 million in September 2000, producing a $22 million surplus, the suit said.
But the fund lost $80 million over the next two years and fell to $265 million as of September 2002, after accounting for benefits paid out during the period. The board fired Mercer about a year later.
The suit claims the pension plan was actually running a $6 million surplus when Mercer proposed attempting an 8.5 percent rate of return.
Given that surplus, and the fact that only about a quarter of the plan's participants were still working -- with the fund paying out 10 times the contributions it took in -- the suit says the fund should have taken the opportunity to pursue a less risky investment strategy.
John Dickson and Michael Haley, Mercer's advisers to the fund from 1994 until May 2001 and from May 2001 until December 2003, respectively, are co-defendants in the suit.
In addition to giving bad financial advice, the suit claims all three defendants are guilty of "conflicts of interest that caused them to favor certain asset managers and investment options in order to obtain greater profit for themselves."
The Securities and Exchange Commission has investigated Mercer and other investment consultants in the past, questioning the objectivity of advice provided by firms that are paid by both pension funds and money managers.
Mercer spokeswoman Stephanie Poe said the complaint had no merit....
March 29, 2006
Milwaukee County lawsuit
over pension deal
Milwaukee County has sued its former actuarial firm, Mercer Human Resource Consulting, for malpractice and breach of contract related to the 2000 county pension deal.
Mercer advised the county on the cost of the pension enhancements under a contract signed by the former personnel director Gary Dobbert. (Dobbert crafted the pension package and went to jail in 2004 for lying about the deal’s costs.)
The lawsuit alleges that Mercer
…made repeated, serious actuarial mistakes, grossly underestimated costs and totally failed to assess the actuarial effect.
The lawsuit is being brought by Milwaukee County, the county’s Employee Retirement System, and the county’s Pension Board.
http://www.sequence-inc.com/fraudfiles/2006/03/29/
May 15, 2005
SEC Targets Pensions
By Neil Weinberg, Forbes
Now the U.S. Securities and Exchange Commission is taking on the pension business.
The expected action involves companies that advise public and private pension funds how to allocate trillions of dollars in investments and which money managers they recommend. This has led to accusations that “pay-to-play” is rampant among consultants. Critics charge they favor money managers who buy services from them.
The consultants have denied such bias.
The SEC may have felt compelled to act in part because many pension fund managers appear oblivious to the conflicts inherent in the advice they are receiving. Forbes last year cited an official in charge of investments for the Santa Clara Valley Transit Authority who had no idea his consultant, Mercer Investment Consulting, a unit of Marsh & McLennan (nyse: MMC), was also receiving payments from many of the managers it recommended....
Although the SEC is not expected to announce specific enforcement proceedings against pension consultants on Monday, it is likely that such action will become public in coming months, a person familiar with the situation said.
The SEC’s report is expected to recommend that pension funds use a checklist of questions when evaluating consultants to ensure that the funds understand how their advisers are compensated and the potential conflicts of interest inherent in their businesses, these people said.
“It’s great that the SEC is finally alerting pensions to the dangers involved in hiring these consultants,” said Edward Siedle, president of Benchmark Financial Services, an Ocean Ridge, Fla., firm that investigates wrongdoing among money managers.
“This goes to the heart of a system involving corrupt gatekeepers that is costing many pension funds millions or billions of dollars.”
Among the firms the SEC reportedly requested to submit information in 2003 are Mercer, Callan Associates, Segal Investment Solutions, Watson Wyatt and Wilshire Associates....
www.forbes.com/2005/05/15/cz_nw_0515pension.html
March 23, 2005
Citigroup, Putnam Pay SEC Fines Over Fund
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....
From their website www.mercerhr.com:
Mercer History
Started in the United States in 1937 as the employee benefits department of Marsh & McLennan, Inc., our company took the name of “William M. Mercer” in 1959, when Marsh & McLennan acquired William M. Mercer Limited, a Canadian firm founded by William Manson Mercer in 1945. In 1975, Mercer became a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. In 2002, we changed our corporate name to Mercer Human Resource Consulting. (Recognizing its similar yet different client base, “Mercer Investment Consulting” was simultaneously created as a separate entity.)
Mercer has grown significantly in size and service capabilities through careful recruiting efforts and a series of mergers with other top-quality consulting firms. Today, we are the world’s largest consulting firm in our business.
05/26/2004
HR Figures Prominently in
Stock Exchange Scandal
The human resources director of the New York Stock Exchange and a major HR consulting firm have become key players in the scandal surrounding a $139.5 million pay package for former NYSE Chairman Richard Grasso.
New York Attorney General Eliot Spitzer filed a civil suit against Grasso this week, demanding that he repay more than $100 million of the sum. Spitzer believes Grasso "inflated his pay and deliberately misled his high-powered board about many details of his package to enhance his pay above and beyond a benchmark of comparable chief executives," The New York Times reported on Tuesday.
Grasso, forced out of his job when word of the compensation package caused an uproar last fall, said he's "disappointed that New York's attorney general has chosen to intervene in what amounts to a commercial dispute between my former employer and me. I look forward to a complete vindication in court."
But Grasso will have to overcome the testimony of Frank Ashen, head of human resources for the NYSE. News organizations report that Ashen, a 25-year employee of "the big board" and its internal compensation expert, has given Spitzer a statement that essentially says he and Grasso hid bonus payments for Grasso from the board.
In a Tuesday story carrying the headline, "More Than One Canary Sang," the New York Post reported that Ashen has admitted to concealing "lumps of pay of as much as $18 million a pop, by removing large sums from his worksheets and spreadsheets before he presented final pay recommendations to the NYSE's Board of Directors for approval."
"After directors signed off," the Post reported, "Ashen would restore the numbers in order for payroll to cut the excessive paychecks without the board's knowledge."
In exchange for Ashen's cooperation, Spitzer dropped his original plan to name Ashen as a co-defendant in the Grasso suit. Ashen has also agreed to return $1.3 million of the $1.9 million in bonuses he received from Grasso, according to the Times....
Another "gold mine of evidence"—as the Post puts it—has been Mercer Human Resources Consulting Inc, which had been brought in to advise the stock exchange on Grasso's 2003 contract and his request for $139.5 million.
The Post reported that Mercer was pressured by Grasso and Kenneth G. Langone —an NYSE board member, chairman of the board's compensation committee, and a friend of Grasso's—"to crunch the numbers Grasso wanted."
According to the Times, Mercer has since admitted giving the NYSE board a compensation report that contained "omissions and inaccuracies." It has also provided key documents in the lawsuit.
Among other things, the Post reported, Mercer had concealed a "bombshell" internal memo saying that each $1 million increment in a certain bonus plan* for Grasso would trigger a $6.8 million increase in lump-sum payments later. The newspaper added that Mercer has agreed to give back about $440,000 in fees it collected from the NYSE.
Spitzer is suing Grasso under a New York State law that regulates not-for-profit organizations. It says the chief executive of a quasi-public institution—like the NYSE—can be held liable for being paid an unreasonable amount not "commensurate" with his official duties.
"This case demonstrates everything that can go wrong in setting executive compensation," Spitzer said in a press release. "The lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package."
http://hr.blr.com/display.cfm/id/9588
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* For another bogus “bonus plan”, GO TO > > > Hawaiian Airlines
January 13, 2004
Panel touts doubling
Kamehameha salaries
The recommendation for the trustees is based on
"unanticipated" duties the board performs
The annual pay for Kamehameha Schools' five trustees would nearly double under a plan submitted by a court-appointed panel.
In a Dec. 22 report filed with Probate Court, the Trustee Compensation Committee for the Kamehameha Schools recommended the annual pay for each trustee increase to $180,000 from the current $97,500.
The three-member panel also proposed that the board chairman's annual pay increase to $207,000 from $120,000.
The new pay requires the approval of Probate Court, which has scheduled a Jan. 23 hearing.
"We are mindful that our determination and recommendation may be viewed by the casual observer on first impression as a significant increase in trustee compensation. However, on balance, during our study we also learned of the unanticipated and substantial demands on the time and talents of the trustees," the report said.
"Your committee is convinced that presently and for the foreseeable next few years, being a Kamehameha Schools trustees is virtually a full-time job."
The attorney general's office, which serves as the estate's court-appointed guardian, said it plans to raise objections with the court on the pay plan.
A recent study by Philanthropic Research Inc. for the attorney general's office found that average trustee pay for public charities nationwide with assets of more than $500 million is about $6,500 a year, said Deputy Attorney General Hugh Jones.
Philanthropic Research, which operates the Guidestar.org national database of U.S. charitable organizations, concluded that the proposed increase would make Kamehameha Schools' trustees among the highest paid in the nation for public charities, Jones said.
Kekoa Paulsen, a spokesman for the roughly $5.7 billion trust, said the board is declining comment on the report until the Probate Court takes action on the matter. One person familiar with the trust said the committee did not consult with the estate's board when it made its recommendation, although its consultants did interview several trustees about their day-to-day duties....
Trustee pay has been a source of controversy at the Kamehameha Schools, going back to the late 1980s and 1990s when board members were each paid up to $1 million a year. Legislative and court-mandated reforms implemented since then have capped board members' pay at "reasonable levels" set by an outside trustee compensation committee.
The committee, whose members include local attorneys Allen Hoe and David Fairbanks and Kamehameha Schools graduate Michael Rawlings, said the new pay structure is partly in response to recent challenges experienced by the trust.
Federal court lawsuits seeking to overturn the school's Hawaiian-preference admission policy, efforts to expand the school's educational programs and the abrupt resignation last year of the estate's chief executive officer, Hamilton McCubbin, have forced the estate's five-member board to spend more time and effort on trust matters, the committee said.
In its 28-page report, the committee noted that trustees Nainoa Thompson, Diane Plotts, Constance Lau, Robert Kihune and Douglas Ing attended more than 130 board meetings, executive briefings and community gatherings during the past fiscal year.
That is nearly three times the 45 yearly meetings the committee envisioned in 1999 when it capped trustee pay at $97,500 a year, the report said.
The committee's report is largely based on a study by Mercer Human Resource Consulting, which recommended an $180,000 annual retainer for board members and $225,000 annual compensation for the trust's chairman.
While trustees of many of the nation's largest public charities serve with less or no compensation, Kamehameha Schools' board members "spend far greater than double the amount of time spent by most corporate directors and trustees of large foundations," the Mercer report said.
"The issues confronted by the trustees from expansion of the schools, land use, environmental issues, to litigation concerning admission policies are most significant, complex and time-consuming matters that cannot be delegated or disposed of in a monthly meeting," the Mercer report said.
~ ~ ~
For the complete article - along with a paid advertisement
by Mercer Human Resource Consulting - go to...
http://starbulletin.com/2004/01/13/news/story1.html
November 5, 2003
From the House Subcommittee on Oversight and Investigations:
Prepared Witness Testimony
The Committee on Energy and Commerce
W.J. “Billy” Tauzin, Chairman
=========
The Financial Collapse of HealthSouth
Subcommittee on Oversight and Investigations
November 5, 2003, 10:00 AM,
2123 Rayburn House Office Building
==========
Dr. Phillip Watkins
Former Board of Director and Compensation Committee Member
HealthSouth Corporation
==========
Mr. Chairman, Ranking Member, and members of the Subcommittee, good morning.
My name is Dr. Phillip Watkins, and I am a former member of the HealthSouth Board of Directors. I resigned from the Board in February 2003 and am proud of my long service on behalf of HealthSouth and its stockholders. I welcome the opportunity to share with the Subcommittee my insight into the Board’s functions at HealthSouth....
I became involved with HealthSouth, a brand new company, then known as Amcare, in 1983, after I first met Mr. Scrushy. Mr. Scrushy proposed a merger of my practice’s cardiac rehabilitation facility with Amcare to form what is known as a “CORF” - Comprehensive Outpatient Rehabilitation Facility....
In 1984, I was asked by Mr. Scrushy to join the Company’s Board of Directors, two years before HealthSouth became a publicly traded company in 1986....
Early on, I was appointed Chairman of the Board’s Audit & Compensation Committee. At that time the Company was a startup with such a small board that these two functions were combined to form one committee. At that time, many companies followed this practice. Later, the committees were separated into two distinct committees.
As Chairman of the Audit & Compensation Committee, I worked with and relied upon the outside experts hired by our Board. For example, we hired Mercer Human Resource Consulting to assist the Committee as out compensation consultants. Mercer retains a reputation as one of the largest and most relied upon compensation consulting firms in the country. Mercer analyzed the compensation trends of similar firms in the healthcare industry and, along with other experts, advised the Compensation Committee. It was based upon this information and advice that we determined the compensation packages of HealthSouth’s management team.
By all accounts, HealthSouth was growing at an exciting pace, and was singled out by numerous industry publications, including Forbes and Fortune, as an up and coming star in the field of outpatient surgery and rehabilitation. ... The compensation for HealthSouth senior executives, including Mr. Scrushy, was based upon this apparent outstanding performance, and the Committee was always assured by the independent analyses of experts such as Mercer that the Board’s compensation philosophy was entirely in keeping with the best practices at the time.
Specifically, we implemented a performance based incentive-compensation program, which included annual bonuses and stock option grants under a stockholder-approved option plan.
We now know the numbers we relied on and were certified by our outside accountants to calculate senior management compensation were fraudulent.
If the Compensation Committee had known of the fraud, Mr. Scrushy and others would have been terminated immediately and would never have received these salaries, bonuses, and stock options.
I was as shocked and angry as the rest of the public when I learned that senior members of HealthSouth’s management team had been perpetrating a fraud on HealthSouth’s stockholders. The Board of Directors was similarly deceived. These criminal conspirators were able to fraudulently conceal or otherwise alter information and documents such that all of the experts including the accounting firm of Ernst & Young did not detect the fraud.
As a corporate director, I relied on the accuracy of information provided to me by management and by outside experts such as Ernst & Young. It is now evident that because the truth had been so thoroughly concealed by certain former members of management, the probing questions and activism of this Board could not have discovered the existence of this accounting fraud.
In addition to questioning former management and outside experts, the Company had in place internal control systems designed, in part, to catch fraud. But every system of checks and balances is only as good as the people who are there and use them. Ms. Henze testified that she did use the compliance system we had set up to receive and act upon such information. That’s how the compliance system was supposed to work. It is incomprehensible to me how designated compliance personnel could have received such apparently clear information and could not have told Ernst & Young, the Audit Committee or the Board.
Just to be clear, the fraud occurred at a corporate level. Ernst & Young conducted the corporate-wide audit. In contrast, internal audit conducted facility level audits. The Subcommittee heard testimony two weeks ago from Ms. Teresa Sanders and Mr. Greg Smith of HealthSouth’s internal audit department. The Audit Committee did meet on a regular basis with Ms. Sanders and Mr. Smith and received their reports and questioned both of them....
They never told us they had any suspicion of impropriety....
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 itself.
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 charges.
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 products.
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 health.
"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 most."...
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 opportunity."
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 are disbursed.
"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 entitled.
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.
After Andrew
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 at three 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 the family.
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.
September 5, 2003
Locals jump on offshore
outsourcing bandwagon
By Christine Hall, Houston Business Journal
Synhrgy HR Technologies Inc., one of Houston’s fastest-growing technology companies, is looking to India for the right company to help it fulfill its mission in the most cost-effective way and improve customer service.
It’s a move Synhrgy is not taking lightly, as the topic of offshore outsourcing is raising heated discussions around the water coolers of companies throughout the country.
Besides human resources, Synhrgy also develops the technology it uses to carry out outsourcing functions. Although the programming and coding aspect of the technology is done elsewhere, the company wanted to continue managing the design and quality assurance of it in Houston, says Michael Taggart, president of Synhrgy....
Catching Up
For many public and private businesses, an abundance of software work or a shortage of experienced personnel could send upper management into a state of panic.
To ease the backlog, companies like Synhrgy have turned to software outsourcing – increasingly, offshore, to operations in other countries.
Today, more that 90 percent of U.S. companies outsource one or more activities, including call center monitoring, according to a Harvard Business Review study. Many of those agreements are with programs in India and the Philippines, two nations with plentiful supply of well-educated people, says Chip Rainey, a partner in the technology and commercial transaction practice of Locke Liddell & Sapp LLP’s Houston office.
“This topic is controversial now because a number of people think the United States will become a nation of consumers if most of the work is done overseas,” he says. “There was the same type of discussion in the 1950s and 1960s about garment manufacturing and automobiles that went into the 1970s and 1980s during robust growth, and into now where the costs of production go to those who can do it for the least.”
Internet intervention
With the advent of the Internet and the move to put everything online for easy-access by users, services needed to keep up the Web sites are crossing borders.
Even small transactions such as the purchase of books online are pushing both online book stores and physical stores to compete in attracting consumers. The trend has also crossed over to areas such as the banking industry where almost all aspects of basic banking can be done through the Internet.
“Many of the call centers or companies processing the information could be located in Canada or Poland or Ireland,” Rainey says....
Questions swirl around the issue of possible negative affects of globalization and offshore outsourcing, but Rainey says the answers depend on whether U.S. companies will continue to be more innovative than those located in other lands.
“We’ve created the Internet and moved everything to that, so we are not in a position where we can stop being innovative,” he says.
Job shift
Over the next 15 years, U.S. companies are expected to send 3.3 million service industry jobs and $136 billion in wages offshore to countries such as India, Russia, China and the Philippines, mainly by information technology companies, according to a study by Forrester Research.
While there is a fear of job loss, most of the typical jobs that are being lost due to outsourcing are still the lower paying jobs, Rainey says. Some of the American workers who are being replaced have an opportunity to retrain and come back into better paying jobs, he adds.
The loss of all of the jobs in the U.S. is not related to outsourcing, he notes.
“In the past two years, we saw the strongest job creation in history, but there has been a net loss of jobs in the U.S.,” Rainey says. “If a company isn’t able to stay efficient, it will lose out to competitors.”
Cost savings is a reason many companies have jumped onto the outsourcing bandwagon, but it is not one of the major reasons, according to the Harvard Business Review survey.
The opportunity to have a highly qualified technician work on a project is one of the major reasons work is sent to countries such as India, according to Mathew George, president of East West Software Services Inc., a Houston-based firm specializing in outsourcing to India.
“Many of the jobs being done by those with only high school education in the United States can be done by highly-skilled people in India,” he says.
To demonstrate the professionalism of outsourcing, George frequently offers to provide U.S. companies a sample of the work on a difficult project without charge....
That method was used, he adds, in getting work for Centerpoint Energy. George’s company helped to set up the remote updation of Centerpoint’s gas and electric service orders....
Weighing options
Synhrgy is one of the companies projecting to save one-fourth to one-third of its costs by outsourcing, but Taggart is not dismissing the concerns many of his clients are addressing if direct contact work were to be moved to India.
“A concern was raised that, if we put a call center overseas, would the person taking calls understand the subtleties well enough to satisfy the person asking the question,” he says.
To address this, Synhrgy is coming up with a plan to ease into outsourcing by initially moving some operations, such as the back-office data processing, which has little to no direct customer contact, Taggart says. The next step will be to incorporate some direct customer services.
Another concern is protecting intellectual property. Forming a partnership with another company involves sharing private customer information.
“There was a concern that if we did that, would we, at some point, be training someone to be a competitor?” Taggart says. “You have to be careful about the relationship, making sure the other company is a partner and not a vendor.”...
Even though a decision is still being made on the right company, Taggart feels outsourcing will allow the company to continue to grow and meet the needs of its customers.
(c) American City Business Journals, Inc.
January 7, 2004
Mercer agrees to buy Synhrgy
Houston Business Journal
Mercer Human Resource Consulting has agreed to buy Synhrgy HR Technologies in a move to expand its consulting and outsourcing services.
Financial terms of the deal were not disclosed.
Mercer Human Resource Consulting, part of Mercer Inc. - a wholly-owned subsidiary of New York-based Marsh & McLennan Cos. Inc. - is the world’s largest human resource consulting firm providing consulting on human resource issues and employee benefit programs.
Houston-based Synhrgy provides human resource technology and outsourcing services to Fortune 1000 companies....
~ ~ ~
Catbird catcall: If you’re an ex-Enron employee, and want to check on your health
benefits or your pension plan, you can ...
GO TO > > > The Enron Health and Group Benefits Service Center. Or, if you don’t
have your Password, call the Benefits Service Center at (800) 332-7979, Option 1.
(Hopefully, you’ll get someone who can speak your language.)
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 of them.
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 in Marsh & McLennan’s stock 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 employees who have bought Marsh stock in the company’s employee stock purchase plan or in their retirement plans.
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 billion invested 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 worth.
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 investment options.
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 money.
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.
www.nytimes.com/2004/10/20/business/20place.html
- For more on pension plan fraud, GO TO > > > The Great Nest Egg Robberies.
June 29, 2004
Marsh & McLennan Creates Outsourcing Unit
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 company said.
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 founded....
Upon the deal’s completion, Kroll will become part of the risk and insurance subsidiary of Marsh.
Michael Cherkasky, Kroll’s chief executive, will run the new unit and Jules Kroll will serve as vice chairman....
For more, GO TO > > > Kroll, The Conspirator
An Airline Bailout--with Strings Attached
Uncle Sam may have more say in operations
Less than two weeks after terrorists hijacked and crashed four commercial jets on Sept. 11, Congress opened up the Treasury to the airline industry. Lawmakers coughed up $5 billion in emergency aid and agreed to guarantee up to $10 billion in borrowings. The government had shut down the airlines for nearly three days, so it's only fair that it provide compensation, the thinking in Washington went. The bailout was aimed at making the airlines whole--in effect, turning back the clock to Sept. 10.
But for airlines, Sept. 10 wasn't such a great time, either. The emergency legislation didn't touch some fundamental problems. Airlines are a cyclical business, not unlike commodity manufacturing or commercial real estate, swinging from boom to bust. Like many old-line industries, airlines have huge fixed costs; a single airliner can cost as much as a factory, so debt levels are high. And their workforces are highly unionized and highly paid. Pilots and mechanics, especially, hold enormous clout over management because their specialized skills are tough to replace.
"BANKRUPTCIES." Even so, how did such a relatively brief shutdown threaten to ground the entire industry? Even before the terrorists attacked, analysts expected the airlines to lose $2 billion this year. Now, with fearful tourists and business travelers avoiding flights, that could turn into a $5 billion loss. "Even if the aid package could get them back to the status quo, the status quo is not a good place to be," says Morgan Stanley Dean Witter analyst Kevin C. Murphy. "Some carriers are mortally wounded."
Free-market advocates in Congress insisted that any airline vulnerable to bankruptcy on Sept. 10 will still face that possibility when the $15 billion runs out. "We believe in markets, not Marxism. We have taken corrective action at the top, and we would expect that the falling of the dominoes has slowed," says Senator Charles E. Grassley (R-Iowa). But if traffic doesn't pick up enough and a bunch of airlines file for bankruptcy in the months ahead, some of those same congressmen might have to decide whether to step in again, and the precedent could be hard to ignore.
Even if Congress remains hands-off, regulators will likely face the thorny issue of how to manage an inevitable consolidation. Just months after antitrust officials blocked United Airlines Parent UAL Corp. (UAL ) from buying US Airways Group Inc. (U ) for fear that it would crimp competition, they may have no choice but to act as referees as surviving airlines snap up routes and airport gates from dying carriers. Already, industry analysts are predicting a shift in policy to let even blockbuster deals go through.
The bailout comes with strings that give the government more say in basic business decisions. For one, airline executives who earned at least $300,000 last year can't be paid more this year or next. And their severance pay can't be more than two years' salary. That's likely to draw cheers from union workers, but a second condition has larger implications: In return for guaranteeing an airline's debts, the government will get warrants, stock, or stock options in the airlines; the details aren't worked out yet. "There will be greater government involvement and influence," says Standard & Poor's Corp. analyst Philip Baggaley. "Money doesn't come without strings."
The weakest players aren't likely to change post-bailout. Topping the critical list are US Airways (U ) and America West Airlines Inc. (AWA ). US Airways, the nation's No. 6 carrier, has long been in trouble because of its high operating costs and small reach, which was why it solicited a takeover offer from UAL last year. The airline had a debt-to-capital ratio of nearly 92% at the end of 2000, while anything above 50% is considered unhealthy.
US Airways has been hurt further by the indefinite shutdown of Ronald Reagan Washington National Airport near Washington, where it had been the biggest carrier. No. 8 America West, which came back from bankruptcy a decade ago in the last recession, is also getting dragged down by a millstone of debt and had less than $200 million in cash and credit before the bailout.
Neither airline would comment on its financial condition. But Peter Walsh, chief of Mercer Management Consulting's aviation unit, predicts: "Even with this aid package, there still will be bankruptcies."
WAR-RISK INSURANCE. Continental Airlines Inc. and Northwest Airlines Corp. (NWAC ) were in slightly less trouble before the rescue. If the airlines had remained grounded, Continental had enough cash to survive for only 39 days, according to Salomon Smith Barney Inc. Northwest's debt ratio was 96%....
Even AMR (AMR ), parent of American Airlines and Trans World Airlines (TWA ), and UAL had seemed vulnerable. While they rank first and second in the world in traffic, the airlines faced ruinous claims if they had been forced to reimburse people and businesses for losses on the ground when the hijackers crashed their planes. But Congress shielded them from those liabilities.
The handouts will go a long way toward patching the financial hole that the terrorists tore in the industry. AMR will receive the most aid, an estimated $915 million, followed by UAL, at $804 million. No. 5 Continental gets $396 million, while American Trans Air Inc. (AMT ), which ranks 10th, will get $51 million. All told, passenger airlines will get an estimated $4.5 billion, while cargo-only carriers will receive $500 million.
Still, the airlines don't expect a rapid return to normal traffic levels. Aside from Southwest Airlines Co. (LUV ), the major carriers have announced service and payroll cuts of roughly 20%. Altogether, the industry is expected to shuck 110,000 employees and up to 900 no-longer-needed planes, as airlines downsize to levels of the mid-1990s. Most of the planes will be parked in deserts in the West. Even before the hijackings, four small carriers had filed for Chapter 11 protection; one, Midway Airlines Corp., has shut down.
PLUNGING TICKET SALES. Eventually, of course, people will return to the skies. Already, there are some signs of normalcy. Southwest is again promoting its low fares on TV, and United has resumed emphasizing ticket sales on its Web site. At Minneapolis-based Carlson Wagonlit Travel, travel agents report few cancellations over the upcoming yearend holidays. And one by one, corporations are lifting their bans on travel.
Still, it took more than a full year for travel to get back to normal following the Persian Gulf War in 1991. And analysts and industry executives say the coordinated hijackings of four jets inside the U.S. could spook travelers for even longer. The Air Transport Assn. forecasts that ticket sales will be off 40% in the fourth quarter and won't rebound to year-earlier levels until next year's third quarter. "There is no business unless people feel secure. Period," notes Philip M. Condit, Boeing Co.'s chairman and CEO.
In some ways, the industry is stronger than it was going into 1991, when a war and a recession conspired to drop airlines into the tank. Even before the hijackings, some carriers were speeding up the retirement of old planes, postponing purchases of new ones, and imposing hiring freezes. But the nation's fear of flying is much more intense today than it was a decade ago. And a full-blown recession appears to be just starting. The bailout and the airlines' aggressive cost-cutting should get most of them into the new year. But 2002 will almost certainly bring more financial crisis. Look for the government to be right in the thick of it.
- By Michael Arndt in Chicago, with Nanette Byrnes in New York and Lorraine Woellert in Washington.
www.businessweek.com/magazine/content/01_41/b3752735.htm
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 Group.
• 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 Starwood Hotels.
• Wellington Management Co. is the #1 institutional investor in Marsh & McLennan.
• 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 Casinos.
• etc., etc., etc.
For more on Chubb Group, GO TO > > > The Chubb Group
For more on Citigroup, GO TO > > > Vampires in the City
For more on Goldman Sachs, GO TO > > > Dirty Gold in Goldman Sachs
For more on pension plan fraud, GO TO > > > The Great Nest Egg Robberies
October 14, 2004
White House For Sale
CONTRIBUTORS AND PAYBACKS
PIONEER PROFILE:
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 cousin, Dorothy.
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 times over.
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 $250,000.
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 & McLennan had almost $2.5 million in federal contracts in fiscal 2002, mostly with the Treasury Department.
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 providers.
Among the insurers implicated in the suit were American International Group Inc (AIG), the global insurance giant and largest U.S. insurer led by Maurice “Hank” Greenberg, Jeffrey’s father, and ACE Ltd., the big Bermuda-based insurer led by Jeffrey’s brother Evan Greenberg....
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 from Spitzer.
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 Ace to start his own legacy. In March this year he was named chief executive.
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 suites.
In a press conference on Thursday, Spitzer directed this comment to Marsh’s board of directors:
“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.]
* * *
For more, GO TO >>> The Un-American Insurance Company
March 17, 2002
Dead air deal rankles Aloha
By Susan Hooper, Honolulu Advertiser
The proposed merger between the state's two local airlines foundered because Hawaiian Airlines wanted to change the terms of the agreement, including eliminating the Houston consulting firm coordinating the deal, the chief executive of Aloha Airlines said in a statement today.
Hawaiian's proposal also would have given Hawaiian chairman John Adams the top spots in the merged airline, eliminating Greg Brenneman, the TurnWorks executive who had been orchestrating the merger, according to Glenn Zander, Aloha's president and chief executive officer.
"Aloha could not accept Hawaiian's new proposal because in our judgment, it was not in the best interest of the state, the traveling public or Aloha's shareholders and employees," Zander said.
The details emerged a day after Hawaiian said it was pulling out of the deal because it did not wish to extend what it called an April 18 "outside date for completing the merger." It said increasing costs and risks of the deal were factors.
The announcement surprised many in the state, including employees of both airlines and state legislators who as late as last Tuesday had held a hearing on the merger.
Today, Zander said Hawaiian's action was "regrettable" and said members of Aloha's board of directors voted unanimously to reject Hawaiian's proposal. He also praised Brenneman and TurnWorks for their work on the merger.
Hawaiian spokesman Keoni Wagner said tonight, "We don't necessarily agree with Aloha's characterization of the negotiations, but we also choose not to discuss publicly what would otherwise be private conversations."
The apparent power grab by Adams came even though he and his affiliated companies would have been the financial winners if the merger had gone through. Adams stood to receive assets valued at about $109 million. Adams, his companies and other Hawaiian shareholders also would have held a 52 percent stake in the new airline.
Under terms of the original merger, the shareholders of privately owned Aloha Airlines — many of them relatives of the company founders — would have gotten 28 percent of the merged airline, worth an estimated $56 million.
TurnWorks would have received a 20 percent stake in the company.
For more than a year, Aloha and its consultant have viewed TurnWorks and Brenneman as essential to the success of the merger, according to documents filed with the Securities and Exchange Commission last month that outlined how the merger came about.
Aloha's consultant, Mercer Management, initially approached Brenneman in February 2001 asking whether he wanted to invest in the airline. In July, Brenneman, a former top executive with Continental Airlines, met further with Mercer to discuss a possible investment and subsequent merger with Hawaiian.
Hawaiian officials, contacted in August, initially appeared cool to the idea but after the Sept. 11 terrorist attacks, and subsequent downturn in travel, they agreed to "discuss a possible merger involving the two airlines and TurnWorks," according to the documents.
On Sept. 22, according to the documents, Mercer and senior management officials of Aloha and Hawaiian met and Mercer proposed that both airlines should continue to include Brenneman and TurnWorks in the merger discussions as Brenneman "was likely to be an important factor in creating an agreement between the two airlines, leading the integration efforts, and running the combined carrier and in generating maximum value for shareholders of both companies."
On Sept. 25, the documents say, all parties agreed to proceed with merger talks. They also agreed "that the involvement of TurnWorks and Brenneman would be an important factor in consummating a deal, as past efforts to combine the two airlines were not successful."
TurnWorks officials said in a statement today, "We were surprised and disappointed (by Hawaiian's decision) ... The failure to extend the timetable essentially precludes completing this complex transaction....
The abrupt end to the merger, which was announced Dec. 19, leaves the future of the two airlines and of Hawai'i's interisland airline market uncertain. In announcing the deal three months ago, executives with both airlines said they needed to merge because conditions in the airline industry — and in the interisland market in particular — had made it impossible for them to survive separately.
After the Sept. 11 attacks, both airlines lost tens of thousands of dollars a day and furloughed hundreds of workers. In recent weeks, as the Mainland economy has recovered, there have been signs of improvement in the local airline market.
Still, documents filed with the Securities and Exchange Commission show that Aloha is financially more vulnerable than Hawaiian. The privately held airline has more debt on its books and reported a $1.25 million loss at the end of the third quarter Sept. 30. The airline also has smaller and older aircraft and fewer flights to the Mainland.
Today Zander said Aloha has its own business plan to move ahead "on a stand-alone basis." Aloha spokesman Stu Glauberman said Zander will be meeting with Aloha's employees' union executives tomorrow.
Before the announcements over the weekend, the two airlines had been working on a joint application to take advantage of a special antitrust exemption granted by Congress last November to cooperate on some operations, such as routes, scheduling and pricing....
Gov. Ben Cayetano had been a supporter of the merger and said today, "The failure of the merger had nothing to do with the U.S. Department of Justice, the state Legislature or public opposition. This was a business decision that we will have to accept. The state administration will do its best to try to assure that Hawai'i will continue to have two viable interisland carriers."
State Sen. Ron Menor, D-18th (Mililani, Waipahu, Crestview), chairman of the Senate Commerce, Consumer Protection and Housing Committee, had opposed the merger and his committee took part in statewide hearings....
The mood among workers at Honolulu's interisland terminal was split between the two airlines today, with Aloha employees grim-faced and in no mood to talk about the failed merger, and Hawaiian employees buoyant.
Baggage handlers outside the Hawaiian half of the terminal this afternoon burst into ebullient giggles when asked how they and their co-workers felt about the merger being called off.
"We still have our jobs!" said Thad Estrada, one of the Hawaiian handlers. "Everybody is pretty happy right now. There had been a lot of stress lately, and then today, even though all the schedules and everything are still the same, everybody is smiling. It sure makes the day go better."...
Outside the terminal, Tammy Castro of Mililani and Diane Halemano of Makakilo grew tired of driving around the airport while waiting to pick up relatives, and parked in a lot to talk until their cell phones rang.
"Did you see about the merger?" Castro said. "Oh, I am so happy."
Castro said she'd signed a petition earlier, asking that the merger be stopped.
"They'd have a monopoly on the fares, and we'd have no one else to go to," she said. "We need a choice. People would lose their jobs and we already have enough unemployment. Besides," she added. "No offense, but I just love Aloha."
See also: Aloha Airlines; Hawaiian Airlines; CV05-00030-David C. Farmer vs. Harmon - Witnesses: Ben Cayetano; Linda Lingle; David C. Farmer; Earl Anzai; Lyn Anzai
From The Money Men: . . .
You’ve probably never heard of Wayne 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....
March 6, 2000
Treasurer Scandal’s Tentacles
Reach Texas
By Don Michak, Journal Inquirer
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...
(See: http://www.johnmccain.com/Informing/fundraisers.htm)
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 chieftains Maurice 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 Carlucci, 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 and North Cove Ventures, a company organized by former House Majority Leader William DiBella, a Democratic power broker and confidant of Silvester’s, $374,500....
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 underwriters....
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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....
For more, GO TO > > > A Connecticut Yankee in King Kamehameha’s Court; Aloha, Harken Energy!; Birds in the Lobby and...
http://www.johnmccain.com/Informing/fundraisers.htm
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MARSH & McLENNAN: THE MARSH BIRDS
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OFFICE OF THE U.S. TRUSTEE VS. HARMON
THE PRUDENTIAL: A NEST ON SHAKY GROUND
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Last Updated March 31, 2009, by The Catbird
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