NEW YORK — Marsh & McLennan, the nation's largest insurance brokerage, said Tuesday it will lay off 3,000 employees, or about 5 percent of its work force, because of fallout from a bid-rigging scandal that has engulfed the insurance industry.
Marsh & McLennan made the announcement as it reported that third-quarter earnings plummeted 94 percent, a drop the company blamed in large part on having to set aside money for government settlements. The company also announced that it reached a tentative $40 million agreement with the Securities and Exchange Commission to settle allegations of questionable brokerage practices at its Putnam investment operation.
Marsh & McLennan said in a statement accompanying the earnings report that the job cuts are "based on the realities of the marketplace and our current situation."
The gloomy scenario is the result of a civil lawsuit filed last month by New York Attorney General Eliot Spitzer that accused Marsh of bid rigging and price fixing in the sale of property and casualty insurance to businesses.
Spitzer also charged that the company's commission system — which included payments from insurance companies in exchange for more deals — essentially amounted to kickbacks. The scheme forced businesses to pay more than necessary for insurance coverage.
Several executives at Marsh and other insurance heavyweights, including American International Group, have stepped down or been ousted amid the investigation, and the companies' stock has tumbled. Marsh's stock is off more than 40 percent since Spitzer announced his investigation on Oct. 14.
Asked about the layoffs, Spitzer spokesman Marc Violette said: "It's terrible when workers lose their jobs because of the illegal conduct of management."
Marsh said it is setting up a reserve fund of $232 million to help cover expected settlement costs with Spitzer.
The agreement with the SEC involved so-called directed brokerage practices at Putnam. Directed brokerage involves a fund company giving its trading to a broker in exchange for the broker selling the firm's funds. Putnam earlier reached a separate agreement with the SEC over market timing in its funds. Both practices raise costs and lower returns for small savers who invest for the long term.
Michael Cherkasky, the new president and CEO of Marsh, told the Associated Press that the company's internal investigation was proceeding as planned and could be finished in a month.
Cherkasky said the review so far has found "very limited price-fixing issues confined to a few people in a very narrow practice line." Some 10 people have been fired or suspended as a result, he said.