LORD Lang of
Monckton, a former Secretary of State for Scotland, has become
embroiled in a US class action over his role as a part-time director
of Marsh & McLennan, the world’s largest insurance brokers,
which has been accused of massive fraud.
Along with other directors,
he is being accused of breaching his fiduciary duty to shareholders
by leading New York law firm Goodkind Labaton Rudoff and Sucharow.
The action alleges that the former Tory minister and other directors
should have known that shares in the company were "an imprudent
investment alternative" for Marsh employees.
It follows a collapse in
shares of the company after New York’s attorney general
Eliot Spitzer alleged his office’s review of documents from
2003 found that Marsh collected $800 million (£431m) in
improper contingent commissions - more than half of the $1.5 billion
(£907,000) in profit it reported - last year in return for
Other prominent UK politicians
to have been hit by problems on the other side of the Atlantic
have included the former Washington-based British Ambassador,
Sir Christopher Meyer, who was a non-executive director of the
American bank Riggs which was accused of money-laundering, and
former Tory minister Lord Wakeham, who was on the board of collapsed
energy giant Enron.
Lord Lang joined the Marsh
group as a non-executive back in November 1997. A former
MP for Galloway and Upper Nithsdale from 1979 to 1997, he was
Scottish Secretary from 1990 to 1995 when he took over as trade
and industry secretary until 1997.
Along with other non-executive
directors of Marsh & McLennan, he recently announced that
he had authorised a thorough independent review of all activities.
"We have full confidence
in the company’s leaderships," the directors said in
a statement yesterday.
"When the review has
been concluded, the board will take all appropriate action in
the interests of our shareholders, employees and clients."
Spitzer has a history of
taking tough action on leading names on Wall Street - last year
he was involved in a near £1bn settlement with top stock
broking firms after allegations that their research was biased
in favour of client companies ahead of the collapse of shares
in a number of big internet companies.
Marsh & McLennan is
now the world’s best-known as well as biggest insurance
broker following its alleged involvement in the scandal.
Last week, as legal dangers hung over it, trading was revealed
as suffering badly as a result, with profits down 94 per cent
in the past quarter. Marsh has also just announced
that 3,000 of its workforce - one in ten of the total - are to
lose their jobs.
Wall Street fraud
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heavyweight Lord Lang was last night under further pressure to
quit his lucrative post on the board of a huge American insurance
company after it emerged that a federal financial watchdog is
probing executives’ and directors’ investments in
controversial schemes that have brought in billions of dollars
over the past 10 years.
Marsh & McLennan, the
world’s largest insurance brokers, admitted that the Securities
and Exchange Commission (SEC) had begun a formal investigation
into investments by its executives and directors in partnerships
set up by the company.
The revelation follows
months of damaging claims about alleged "fraudulent and illegal"
schemes entered into by the company. The new investigation
has brought the business affairs of a man who was president of
the Board of Trade in the last Tory government back into the spotlight.
Pressure has been mounting
on the directors of Marsh, including Lang, since the firm was
accused by New York Attorney General Eliot Spitzer of manipulating
insurance bids to collect inappropriate fees, collusion, improper
steering of business, paying rivals not to make competitive quotes
and threatening firms that would not agree to Marsh’s controversial
As a result of the law
suit, several executives of Marsh have resigned and executives
of several other insurance firms have been arrested on anti-trust
charges. This has started a wider investigation into insurance
companies and their practices in the US.
Following the Attorney
General’s action Lang was named, along with other directors,
in a class action against the company which alleges "bid-rigging
schemes" and breach of fiduciary duties to Marsh shareholders.
A statement from the company
said: "We take very seriously the allegations made public
by Attorney General Spitzer. We are committed to getting
all the facts, determining any incidence of improper behaviour,
and dealing appropriately with any wrongdoing. This
is our highest priority."
stint with the troubled insurance giant has been a lucrative one.
He received more than £71,000 in fees, stock and expenses
from the group last year and owns shares worth more than £140,989.
But the controversy surrounding
Marsh has increased pressure on Lang to resign his directorship.
It has also focused fresh attention on the former Scottish Secretary’s
mixed fortunes in the business world since he relinquished his
post as the UK’s trade supremo after the Labour landslide.
Lang was one of a group
of Lloyd’s Names who went to court in 1996, while he was
still at the Board of Trade, alleging negligence by underwriters
who carried out catastrophe reinsurance business.
He is believed to have
lost some £800,000 in the collapse of the Lloyd’s
system. His syndicate was one of those involved in
the reinsurance spiral whereby syndicates reinsured each other
against catastrophe claims.
After he left office he
pursued another legal action against Lloyd's, along with other
names, claiming the organisation had failed to meet the terms
of an agreement to reimburse their legal fees as part of a deal
in which they agreed to drop a suit against an incompetent agent.
The former minister’s
involvement in the business world has been beset with problems.
As recently as Christmas Eve, Thistle Mining, the Scottish-Canadian
gold-mining firm he chaired, confirmed that its executive office
in Edinburgh was to close.
The setback emerged after
the company announced the departure of president and chief executive
Willie McLucas, amid financial restructuring proposals which would
see principal lender Meridian Capital seize control of the company.
The drastic shake-up, which
followed a series of disappointing financial returns, renewed
speculation over Lang’s future at the helm.
The problems with Marsh
are a further blow to Lang’s business career, and threaten
to plunge him into an embarrassing ordeal similar to that endured
by his former ministerial colleague Lord Wakeham. Wakeham
was forced to resign as chairman of the Press Complaints Commission
because he was on the board of Enron, the collapsed energy giant.
The latest legal action
case against Marsh alleges that the firm forced its employees
to use their retirement savings programmes to invest heavily in
its shares. Employees face heavy losses since the firm’s
stock plunged after Spitzer’s allegations.
The revelations about the
SEC investigation will increase the pressure on all those in the
Marsh last week confirmed
that the SEC had requested documents and other information about
"related-party transactions" in which directors, executives
or large Marsh shareholders acquired a material interest, according
to a report in the New York Times.
The transactions included
dealings with the company’s Trident funds, which were created
by MMC Capital, the company’s private equity business, and
specialised in investing in insurance companies and in starting
The Trident funds, based
in the Cayman Islands, have raised more than $3bn over the past
decade from outside investors and Marsh executives and directors.
Although it is not unusual
for financial and insurance companies and their executives to
invest together in partnerships created by the companies, it is
rare for directors of a company, whose duty is the interest of
shareholders, to do so. The Trident III fund that was
set up last year excluded directors from investing.
Lang did not respond to
requests for an interview.
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