A class action has been filed against Marsh and McLennan Companies, Inc. (NYSE: MMC) and certain of its officers and directors by stockholders who purchased the company’s common stock between October 15, 1999 and October 14, 2004. The action claims that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company’s securities. The stockholder seeks to recover compensatory damages for the loss of value of their stock.

Marsh is the world’s largest insurance broker. It operates by collecting advisory fees from its clients --- mainly large corporations but also small and mid-size businesses, municipal governments, school districts and some individuals --- in exchange for purportedly locating appropriate property and casualty insurance coverage for them. At all relevant times, the Company stated that its “guiding principle is to consider [its] clients best interests in all placements,” and that it “[does not] represent the [companies]” and held itself out as a “trusted adviser and advocate, in effect representing their best interests in the market place.”

The complaint alleges that defendants violated the federal securities laws by failing to disclose to investors that, in truth and in fact, Marsh did not consider its clients’ best interest but, on the contrary, derived a substantial portion of its reported revenue by cheating them through the use of price fixing, kickbacks and bid rigging. Specifically, the complaint alleges that:

(a) in collusion with preferred insurance carriers, including AIG, ACE, The Hartford and Munich American Risk Partners, Marsh routinely orchestrated illusory bidding competitions in which it would designate a winner first and then urge other favored insurance companies to submit inflated bids with the understanding that Marsh would make similar favorable arrangements for them in subsequent competitions;

(b) in exchange for such practices and for steering clients to preferred insurers, Marsh received kickbacks in the form of “contingent commissions”;

(c) Marsh improperly recorded the kickbacks as revenue, thereby misrepresenting the company’s financial performance and the success of its legitimate operations; and

(d) Marsh failed to disclose to investors that defendants’ conduct exposed the Company to civil and criminal penalties and concomitant liabilities, and that such penalities had a materially adverse effect on the Company’s financial performance and prospects.

The truth emerged on October 14, 2004. On that date The Office of the New York State Office of Attorney General announced that it had commenced a civil action against Marsh for steering clients to preferred insurers with whom the Company maintained lucrative payoff agreements, and for soliciting rigged bids for insurance contracts from the insurers. The Attorney General announced in a release that two AIG executives pleaded guilty to criminal charges in connection with this illegal course of conduct and stated, “There is simply no responsible argument for a system that rigs bids, stifles competition and cheats customers.” Immediately following this announcement, the price of Marsh stock fell $11.16, or 24 percent, from its opening price of $46.01 to a closing price of $34.85 on trading volume of 44.4 million shares.