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By all accounts, insurance broker Marsh & McLennan seems intent on settling Attorney General Eliot Spitzer’s allegations of bid-rigging. The attorney general has accused the company of arranging sham bidding procedures that steered business to insurers based on kickbacks to Marsh rather than what was in the best interest of the clients buying the policies. At the heart of these claims lie so-called contingency agreements, under which insurers paid commissions to Marsh. Marsh’s CEO, Michael Cherkasky, has repeatedly been quoted in press reports as wishing to settle with the attorney general. The desire to settle quickly illustrates a familiar pattern in the attorney general’s attacks on alleged corporate misbehavior. Not one of the accused companies has taken the battle to the courtroom. They have all settled, albeit while denying any wrongdoing in the process. Behind the willingness to settle, attorneys say, is the fact that executives and their lawyers, unlike individuals accused of wrongdoing, believe that a quick settlement will put them back on the road to prosperity faster than a long well-publicized court battle. And Spitzer’s steadfast dealing with these companies, on display from his earliest battles with America’s corporate titans, has erased any doubts a company might have to fight it out in court. The lone standout may be former New York Stock Exchange Chairman and CEO Richard Grasso, represented by Brendan Sullivan Jr. of Williams & Connolly. A government investigation can linger like a pall, holding down a company’s stock price and spreading anxiety among important constituents like employees and business partners. “Companies don’t want to be involved in litigation with regulators,” said Robert Giuffra Jr., a partner at Sullivan & Cromwell. Even if lawyers think they have a strong case, “the market views litigation adversely” because it undermines public confidence and hurts business prospects, Giuffra said. Marsh’s stock tumbled immediately after Spitzer’s announcement. Within weeks, its CEO, Jeffrey Greenberg, resigned. and Cherkasky took over the helm. Cherkasky had ties to Spitzer dating back to his work in the New York district attorney’s office in the 1980s and most recently led the risk consulting company Kroll Associates. Marsh also ended its use of contingency agreements, a contractual arrangement that insurance trade groups have considered standard for the industry. No matter how strong the desire to fight government may be, companies also risk losing in court, Giuffra said. That principle extends beyond cases brought by Spitzer. Take Microsoft, which had the largest market capitalization in America until the Department of Justice, joined by a host of states, filed an antitrust suit in federal court in Washington, D.C. When Judge Thomas Penfield Jackson ruled that Microsoft exploited its monopoly power and ordered the company’s breakup in April 2000, the company’s stock fell sharply. It has not recovered to this day, although it reached a settlement in which it avoided a breakup but agreed to curb its allegedly abusive competitive behavior. More often than not, the indictment of a company drives it to bankruptcy. Spitzer has conspicuously stopped short of charging companies with criminal violations, as opposed to individual executives. The threat of an indictment remains, however, compelling companies to settle with the attorney general rather than risk bankruptcy. “The stakes are very high,” said Andrew Levander of Swidler Berlin Shereff Friedman, when Spitzer “threatens a criminal prosecution.” Levander guided Long Island-based Symbol Technologies to a settlement with the U.S. Attorney’s Office for the Eastern District in June when eight former executives were indicted for various crimes related to their alleged manipulation of the firm’s securities filings. Likewise, Giuffra helped another Long Island company, Computer Associates, enter into a deferred prosecution agreement with U.S. Attorney Roslynn Mauskopf’s office. Several executives have pleaded guilty to obstruction of justice and securities fraud, but the company has avoided a criminal indictment. The U.S. Securities and Exchange Commission (SEC) and the U.S. Attorney began an investigation of Computer Associates in February 2002 for alleged accounting fraud. The company’s stock lost half its value and has not completely regained the losses. Wachtell, Lipton, Rosen & Katz conducted an internal investigation. Sullivan & Cromwell, led by Giuffra, started a second investigation for the Computer Associates audit committee. Levander and Giuffra said they wanted to avoid what happened to Arthur Andersen. The accounting firm did not survive its defeat in court in 2002 after federal prosecutors accused it of obstructing justice for destroying e-mail and documents related to its client Enron while it was under government investigation. In the Marsh case, several insurance executives have pleaded guilty to participating in the alleged bid-rigging scheme. Marsh has faced only the civil suit, but the threat of a criminal filing remains. FEAR IS GENUINE When Spitzer entered the regulatory area, which had largely been left to federal authorities and state legislators, he was roundly criticized by trade associations like the U.S. Chamber of Commerce and editorials in the business press — as he still is. But he has shown the world that he will not back down, said Lawrence Byrne of White & Case, who helps companies deal with government investigations. A key moment occurred with the $1.4 billion settlement with Wall Street financial firms in December 2002 for alleged conflicts of interest, said Levander. Ten large financial institutions including bellwethers Goldman Sachs and Salomon Smith Barney agreed to separate their analysts from their investment banking arms to avoid compromised research. They also promised to stop allocating shares in initial public offerings to client executives responsible for making investment banking decisions. The size and scope of the settlement sent a message to other companies. Last autumn, Spitzer announced an investigation into the mutual fund industry. One by one, mutual funds have settled with the attorney general for alleged market timing and other schemes. The Marsh suit followed a year later. THE HOLDOUT Lawyers suspect that Grasso, the former chairman of the New York Stock Exchange, may be an exception to this rule of quick settlements. Unlike the companies involved, he will likely weigh whether he should go to court differently. “Once individuals are charged, their reputation has already been damaged,” said Byrne. “It’s his money at stake, and there is no collateral consequence” to litigation, explained Levander. The exchange, represented by Daniel Webb of Winston & Strawn, will not rehire Grasso, and he is in the late stages of his career, he said. Grasso’s lawyers at Williams & Connolly have filed numerous motions to have the case dismissed or moved to federal court. Grasso has countersued the exchange and its chairman. Other high-profile cases have seen few if any adversarial filings. They normally end with a complaint and a settlement. “That seems headed for a collision course,” Byrne said of the Grasso lawsuit.

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