The revelation this week that there is a €6.7 million hole in the accounts of insurance broker Marsh Ireland may be bad news, but it is dwarfed by the problems at its US parent, Marsh & McLennan.

The company's shares have collapsed from $45 to $25 since the revlelation last week that it was being sued by the New York Attorney General, Mr Eliot Spitzer. Yesterday the company was forced to admit that it will have to renegotiate its $2.8 billion (€2.2 billion) credit lines as a consequence.

Mr Spitzer has accused Marsh & McLennan of accepting lucrative fees for steering business to certain insurers. In a filing with the Securities and Exchange Commission released yesterday the company said the lawsuit may prevent it from accessing the $2.8 billion of bank financing under a clause in its lending agreements.

Banks have agreed to waive the clause until December 30th in order to renegotiate the terms of the facilities and will almost certainly demand more attractive terms.

But if Mr Spitzer's allegations are ultimately upheld, then the company's problems may be only just beginning. At the heart of his suit is the allegation that the world's largest insurance broker conspired to cheat business clients out of hundreds of millions of dollars.

The civil suit said that Marsh - hired to find the best deals for its mostly corporate customers - instead steered clients to major insurance companies that made backdoor payments to the broker.

As part of the scheme, Marsh had various insurers fabricate bids to deceive clients into thinking they were getting the lowest-priced policies, Mr Spitzer has alleged.

The practices, he said, hurt businesses of all sizes, as well as local governments, school districts and some individuals.

"It is disappointing for what it once again reveals about the craven disregard for ethics and the law by some of our largest corporations," the attorney general said at a Manhattan news conference last week.

In connection with the probe, two executives of the insurance behemoth American International Group pleaded guilty in New York state court last Thursday to one felony count of scheming to defraud. Both are co-operating in the investigation.

Marsh and other companies named in the investigation said they were reviewing the allegations. Marsh, which boasts a total of about 60,000 employees and annual revenue of more than $11 billion, said it was "committed to serving its clients to the highest professional and ethical standards".

Critics paint Mr Spitzer as a political grandstander, courting media attention to snare headlines as he prepares to run for governor of New York. But others say he is a much-needed champion of the little guy and note that his earlier investigations of Wall Street brokerages and the mutual fund industry have led to huge settlements and far-reaching reforms.

Though charges were filed only against Marsh, Mr Spitzer said other insurance companies remained under investigation. Improper practices appear to be rife throughout the industry, he said, and the inquiry is expanding into other lines of insurance that are sold to individuals.

For their part, industry officials say it's no secret that brokers receive payments from insurance companies, but they maintain that these "contingent commissions" are legitimate compensation for the services they provide.

"These commissions are ubiquitous in the industry and are known to all parties - the brokers, the insurers and the buyers," said Mr Robert Hartwig, chief economist with the Insurance Information Institute, a US industry trade group.

"The element that is new is that there are some criminal acts alleged in how the bids were handled. That was surprising to all parties, and, I think, unrepresentative of how business is done in this industry."

The complaint filed against Marsh alleged that the firm "solicited - and obtained - fictitious high quotes from insurance companies in order to deceive its clients into believing that true competition had taken place."

According to the complaint, the manipulation corrupted "the price of insurance for every policyholder" and victimized shareholders "who have never been told that hundreds of millions of dollars of Marsh's profits derive from illegal activities."

Although Mr Spitzer's suit focused on Marsh's alleged deception, he raised larger questions about contingent commissions. It seems as if "the industry's fundamental business model needs major corrective action and reform," Mr Spitzer said, adding that the use of contingent commissions "distorts and corrupts the insurance marketplace."

In 2003 alone, the complaint noted, about $800 million of Marsh's $1.5 billion in earnings was generated from such commissions.

Several major insurance companies - AIG, Hartford Financial Services Group, ACE Ltd. and Munich American Risk Partners - are named in the complaint as participating in the scheme.

There are family ties among three of the companies. Marsh is headed by Mr Jeffrey Greenberg, 52. His father, 78-year-old Mr Maurice "Hank" Greenberg, is the chairman and chief executive of AIG. Another Greenberg son, 49-year-old Mr Evan Greenberg, heads ACE. None of the Greenbergs was named in the suit.

The complaint cites internal emails and other documents in which executives are evidently discussing actions to maximise revenue for Marsh and its partners.

Meanwhile, Mr Hank Greenberg, AIG's chief executive, hit out at regulators yesterday and defended his company's ethics as he announced it faced another investigation by US Justice department.

News that AIG is the target of a federal grand jury investigation in Indiana comes a week after Eliot Spitzer, named AIG in the Marsh lawsuit.

Mr Greenberg said yesterday: "It's strange, you know. We do business all over the world and the place we are having the most problems is right here in the US. We are the same company that we always have been. If somebody gets off base, we got on it very quickly."- (Reuters, Los Angeles Times/Washington Post Service)