New York Attorney General Eliot Spitzer on Thursday sued Putnam Investments’ parent company, Marsh & McLennan, for allegedly taking payoffs from insurers.

The suit, filed in New York Supreme Court, says that instead of finding the best prices for its customers, the insurance brokerage steered clients toward the insurance firms that would kick back some money its way. Spitzer named four insurance companies – The Hartford, Ace Ltd., AIG and Munich-American Risk Partners – that apparently worked in cahoots with Marsh & McLennan.

The insurance industry as a whole is Spitzer’s latest cleanup project. Previously, he has gone after investment banks, and, of course, mutual funds.

"The insurance industry needs to take a long, hard look at itself," Spitzer said. "If the practices identified in our suit are as widespread as they appear to be, then the industry's fundamental business model needs major corrective action and reform."

Part of Spitzer’s evidence package is a damning note from a Marsh executive that reads, "We need to place our business in 2004 with those [insurance companies] that have superior financials, broad coverage and pay us the most."

In 2003, Marsh & McLennan made $800 million in commission from the fixed deals, according to Spitzer’s office.

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