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In Marsh & McLennan Companites

July 19, 2006


The opinion of the court was delivered by: Shirley Wohl Kram, U.S.D.J.

MDL No. 1744




On October 14, 2004, New York State Attorney General Eliot Spitzer (the "NYAG") filed a civil complaint in New York State Supreme Court against Marsh & McClennan Companies, Inc. ("MMC" or the "Company") alleging that the Company "steered unsuspecting clients to insurers with whom it had lucrative payoff agreements, and that the firm solicited rigged bids for insurance contracts." Press Release, Office of New York State Attorney General Eliot Spitzer, Investigation Reveals Widespread Corruption in Insurance Industry (Oct. 14, 2004), available at The following day, the first of approximately a dozen class action securities complaints was filed in federal court. Each complaint alleges that MMC, its subsidiary, Marsh Inc. ("Marsh"), its auditor, Deloitte & Touch LLP ("D&T"), and nearly two dozen directors and officers of MMC and Marsh are liable for numerous violations of the federal securities laws and assorted state laws.*fn1

Upon plaintiffs' motions, the Court consolidated these complaints and appointed The Public Employees' Retirement System of Ohio, State Teachers' Retirement System of Ohio, Ohio Bureau of Workers' Compensation, and the State of New Jersey, Department of Treasury, Division of Investment as co-lead plaintiffs ("Plaintiffs"). Plaintiffs filed the Consolidated Class Action Amended Complaint shortly thereafter (the "Complaint"). In eight separate filings, the defendants now move to dismiss the Complaint in its entirety for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), and failure to plead fraud with particularity, pursuant to Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 ("PSLRA"). For the reasons stated below, the motion is granted in part and denied in part.


A. The Parties

This lawsuit has been brought as a class action on behalf of all persons that, between and including October 14, 1999 and October 13, 2004 (the "Class Period"), purchased or otherwise acquired securities issued by MMC (the "Class"). The co-lead plaintiffs are large, institutional investors with billions of dollars in assets and tens of millions of dollars of estimated losses. Plaintiffs allege that the members of the Class collectively lost "nearly $12 billion in market capitalization." (Compl. ¶ 27.) In addition, Plaintiffs bring claims under state law on behalf of a subclass of state and municipal pension plans that purchased MMC securities during the Class Period (the "Pension Fund Subclass").

Plaintiffs name both corporate and individual defendants. MMC and Marsh are the primary corporate defendants. MMC is a public company providing professional services in the fields of risk and insurance, investment management, and consulting and human resources. Marsh, MMC's principal subsidiary, provides risk and insurance services to clients. The Marsh subsidiary is wholly owned by MMC, generating approximately 60% of the parent corporation's revenues. (Compl. ¶ 118.) Plaintiffs also name MMC's independent auditing firm, D&T, which audited MMC's financial statements throughout the Class Period.

Plaintiffs name twenty individual defendants, most of them former or current directors and officers of MMC and Marsh: Jeffrey Greenberg, former Chief Executive Officer ("CEO") and Chairman of MMC ("Greenberg"); Mathis Cabiallavetta, former Vice Chairman of MMC ("Cabiallavetta"); Roger E. Egan, former President and Chief Operating Officer of Marsh ("Egan"); Lewis W. Bernard, a director of MMC ("Bernard"); Peter Coster, former President of Mercer and a former director of MMC ("Coster"); Robert Erburu, a director of MMC ("Erburu"); Lawrence Lasser, former President and CEO of Putnam and a former director of MMC ("Lasser"); Oscar Fanjul, a director of MMC ("Fanjul"); Ray J. Groves, former Chairman and CEO of Marsh and a director of MMC ("Groves"); Stephen R. Hardis, a director of MMC ("Hardis"); Gwendolyn S. King, a director of MMC ("King"); Right Honorable Lord Ian Bruce Lang of Monkton, a director of MMC ("Lang"); David A. Olsen, a director of MMC ("Olsen"); Robert J. Rapport, MMC's Vice President, Chief Accounting Officer, and Controller during the Class Period ("Rapport"); Morton O. Schapiro, a director of MMC ("Schapiro"); Adele Simmons, a director of MMC ("Simmons"); John T. Sinnott, former Chairman and CEO of Marsh and a former director of MMC ("Sinnott"); A.J.C. Smith, a former director of MMC, and the pre-Class Period Chairman and CEO of MMC ("Smith"); Sandra S. Wijnberg, a senior Vice President and Chief Financial Officer of MMC ("Wijnberg"); and Michael Bischoff, a senior Vice President and head of Investor Relations during the Class Period ("Bischoff").*fn2

For pleading purposes, Plaintiffs commonly refer to the individual defendants by reference to various group aliases. The following groups are referenced in the Complaint: (1) Defendants Greenberg, Cabiallavetta, Groves, Smith, Sinnott, Egan, Wijnberg, and Rapport (the "Senior Management Defendants"); (2) Defendants Fanjul, Hardis, King, Lang, Olsen, Schapiro, and Simmons (the "Audit Committee Defendants"); and (3) Defendants Greenberg, Wijnberg, Rapport, Cabiallavetta, Fanjul, Groves, Hardis, King, Lang, Olsen, Simmons, Sinnott, Smith, and Schapiro (the "Individual Section 11 Defendants"). The corporate and individual defendants will be referred to collectively as "Defendants."

B. The Factual Allegations

Plaintiffs' principal material allegations are summarized below. This summary takes as true Plaintiffs' allegations and factual assertions, but in no way constitutes factual findings by the Court.

The global insurance marketplace consists of four primary entities: (1) insurance companies that provide insurance; (2) clients in need of various types of liability and casualty insurance; (3) risk managers who evaluate clients' loss exposure and advise them on the type of insurance needed; and (4) brokers that match clients with insurance providers on the basis of the clients' needs and the nuances of the insurance marketplace. MMC is the world's largest insurance broker, providing risk and insurance brokerage services to a predominately corporate clientele worldwide. (Compl. ¶¶ 112-18.) Throughout the Class Period, MMC marketed itself as a client-focused brokerage, emphasizing its establishment of a "level playing field" for insurance providers, "completeness" in its disclosure of bids to clients, and commitment to "bidding integrity" between insurers. (Compl. ¶ 122.)

Clients pay brokers a commission for locating the best insurer for their needs. (Compl. ¶ 117.) In addition, many brokers, including MMC, receive additional, "contingent commissions" directly from insurance companies, pursuant to "placement service agreements" ("PSAs") and "market service agreements" ("MSAs"). These contingent commissions are typically based on an insurance company's book of business with the broker, renewal rates, and the profitability of the business placed by the broker. Because brokers have a fiduciary duty to serve their client's best interests, contingent commission agreements collected from insurance providers present them with a direct conflict of interest. Accordingly, state insurance agencies, such as the New York State Insurance Department ("NYSID"), have established guidelines to regulate brokers' disclosure of the contingent commissions they receive from insurance companies. Though contingent commission agreements have always existed within the insurance industry, MMC pioneered the manipulation of such agreements to drive increasingly higher revenues. (Compl. ¶¶ 123-30.)

MMC's manipulation of contingent commission agreements was exemplified by the formation of Marsh's "Global Broking" division, which was formed in order to control business placement and maximize the Company's receipt of contingent commissions. By centralizing the negotiation of contingent commission agreements in one department, MMC enhanced its ability to steer business to those insurance providers that paid the Company the highest contingent commissions and used the Company's size as leverage to force insurance companies to pay greater contingent commissions in exchange for MMC's placement of business. MMC management mandated that all negotiation of contingent commission agreements be routed through Global Broking. (Compl. ¶¶ 131-40.)

A central part of MMC's business plan throughout the Class Period was to raise the Company's revenues by promoting the interests of the insurance providers with which it had contingent commission agreements. By steering business to the insurance providers offering the most lucrative contingent commissions, MMC collected higher fees. For example, one PSA between MMC and insurance provider American Insurance Group, Corp. ("AIG") provided MMC with a bonus of 1% of all renewal premiums if clients renewed with AIG at rate of 85% of higher. MMC would receive greater percentage bonuses based on higher renewal rates, e.g., a 2% bonus for a 90% rate or a 3% bonus for a 95% rate. Global Broking and Company executives emphasized the importance of PSAs and MSAs to employees and directed brokers to steer clients to insurers paying the highest contingent commissions. (Compl. ¶¶ 141-56.)

MMC employed a variety of techniques to steer clients to specific insurance providers. For instance, MMC began rating insurance companies based on how advantageous their contingent commission agreements were to the Company, rather than on the quality of the insurer's services or the price competitiveness of its policies. These ratings were compiled into tiering reports, which were then used by Global Broking executives to ensure that Marsh focused its broking business on the insurance companies with which it had the most favorable contingent commission agreements. (Compl. ¶¶ 157-61.) In addition to rating carriers based on how lucrative the contingent commission contracts were for MMC, the Company also instituted a "pay-to-play" system through which Marsh would refuse to place business with a provider unless it entered a contingent commission agreement. (Compl. ¶¶ 162-69.) Internally, Marsh encouraged its employees to place contracts with friendly insurance carriers by praising and promoting employees who placed business with those providers that had entered into the most favorable contingent commission agreements with MMC. (Compl. ¶¶ 170-78.)

MMC even engineered a system of bid-rigging, steering business to preferred insurers in order to maximize the Company's contingent commission revenues. In one example of bid manipulation, Marsh created three types of quotes, known as "A," "B," and "C" quotes. When an insurance provider's existing coverage of a MMC client was up for renewal, Marsh would solicit an "A" quote from that provider, informing the provider of the target premium and policy terms for the quote. If the incumbent provider agreed to bid the "A" quote, it would keep the business, regardless of whether it was capable of providing more favorable terms. Marsh would then create the appearance of a competitive bidding process by soliciting higher, "B" or "C" quotes from competing insurance providers. By agreeing to provide less favorable quotes to Marsh, the other providers would receive assurances that they would be protected by the Company when they were the incumbent provider. (Compl. ¶¶ 179-215, 226-31.)

MMC's disclosure of its contingent commission agreements was subject to regulation by the NYSID. Under a NYSID regulatory order promulgated in 1998, known as Circular Letter 22, brokers were required to disclose to their clients the existence and amount of contingent commissions and the reasons for such payments. (Compl. ¶¶ 126, 232.) MMC's disclosure to clients, however, was often misleading. (Compl. ¶ 244.)

The reticence with which MMC revealed the nature of its contingent commissions was compounded by its insufficient disclosure of the importance of contingent commissions to MMC's revenues. Under an agreement entered into with the Risk and Insurance Management Society ("RIMS"), MMC was required to provide its clients with a calculation (called an "average contingency factor" or "ACF") that reflected the amount that MMC received from contingent commissions, in comparison to all premiums placed by MMC in a given year. (Compl. ¶¶ 126, 242-43.) Under the agreement, however, MMC often provided its clients with "technically accurate, but potentially misleading" responses to relevant inquiries. (Compl. ¶ 244.)

MMC's financial statements during the Class Period reveal that the nature of contingent commissions was insufficiently disclosed to investors as well, touting the provision of services for contingent commissions, rather than revealing that contingent commissions were in fact kick-backs for improper steering agreements. The following explanation of contingent commissions in MMC's 2003 Annual Report is illustrative:

Market services revenue is derived from agreements Marsh has with most of its principal insurance markets. Under these agreements, Marsh is paid for services provided to the market, including: access to a global distribution network that fosters revenue generation and operating efficiencies; intellectual capital in the form of new products, solutions and general information on emerging developments in the insurance marketplace; the development and provision of technology systems and services that create efficiencies in doing business; and a wide range of administrative services. Payments under market service agreements are based upon such factors as the overall volume, growth, and in limited cases profitability, of the total business placed by Marsh with a given insurer. (Compl. ¶ 575.) Similar descriptions of contingent commissions are contained in MMC's SEC filings throughout the class period. (Compl. ¶¶ 232-41.)

MMC's improprieties during the Class Period were not limited to Marsh's insurance business, but were widespread throughout the Company. Mercer, MMC's consulting and human resources subsidiary, entered into secretive arrangements with employee benefit vendors and insurers which provided it with incentives to steer its clients to the vendors and insurers that gave it the most lucrative kickbacks. (Compl. ¶¶ 251, 254-63.) Putnam, MMC's mutual fund business, engaged in illicit market-timing and late-trading activities for the benefit of favored investors at the expense of the rest of its clients. As a result of these activities, Putnam paid $111 million to settle regulatory actions against it. (Compl. ¶¶ 252, 275-76.) Additionally, Trident, an investment partnership between MMC and its senior officers and directors, is currently under investigation by the SEC with respect to the propriety of potentially conflict-ridden related-party transactions. (Compl. ¶¶ 253, 277-83.)

On October 14, 2004, the NYAG filed a civil complaint against MMC and Marsh, alleging that the Company was engaged in improper steering and bid-rigging activities. Additionally, the NYAG announced that two of AIG's employees had pleaded guilty to criminal charges in connection with their dealings with MMC. MMC immediately issued a press release announcing that it took the NYAG's allegations seriously and had been cooperating with the NYAG investigation since it began in the spring. Nevertheless, the share price of MMC common stock dropped from $46.13 to $34.85 that same day. (Compl. ¶¶ 284-88.) The following day, MMC announced its suspension of MSAs and the resignation of Marsh's CEO, Defendant Groves. The share price of MMC common stock further dropped from its October 14 close to $29.20. (Compl. ¶¶ 289-93.)

On October 18, 2004, MMC issued a press release regarding the effect of MSAs on MMC revenue, indicating that MMC collected $845 million in MSA revenue in 2003, representing 12% of MMC's $6.9 billion risk and insurance services revenue and 7% of the Company's $11.6 billion total revenue. (Compl. ¶ 294.) In the following months, the Company announced the resignation of Defendants Greenberg and Egan, ethical reforms pertaining to its insurance brokerage transactions, the restructuring of the MMC Board of Directors, and the creation of an $850 million restitution fund to settle the NYAG's civil complaint. (Compl. ¶¶ 301-14.) Also during this time, various MMC employees faced criminal liability in New York, and the Company was subjected to additional regulatory action outside that state. (Compl. ¶¶ 316-18.)

Over the course of approximately one-hundred pages and three-hundred paragraphs of the Complaint, Plaintiffs allege that Defendants made public statements misstating MMC's financial results, omitting material facts, and misrepresenting the Company's business practices. (Compl. ¶¶ 323-646.) The alleged misstatements and omissions fall into seven general categories: (1) MMC misstated its earnings by failing to disclose that contingent commission revenues were derived from improper steering and bid manipulation; (2) MMC misstated its earnings by failing to reserve for contingent losses from its steering and bid manipulation; (3) MMC failed to disclose the magnitude of contingent commissions and their materiality to the Company's revenue; (4) MMC failed to disclose the risks that contingent commissions might be discontinued or that MMC would face litigation or regulatory action; (5) MMC misrepresented the true nature of the services provided in exchange for contingent commissions; (6) MMC made material misrepresentations regarding its commitment to clients and adherence to ethical practices; and (7) MMC falsely represented that Marsh's clients were fully apprised of contingent commissions. In addition, Plaintiffs allege that MMC engaged in fraudulent accounting by failing to comply with GAAP and SEC regulations, thus MMC is liable for issuing, and D&T is liable for certifying, MMC's misleading financial statements. (Compl. ¶¶ 647-746.) Without exception, Plaintiffs' allegations of securities fraud derive from the steering and bid manipulation scheme.

C. The Legal Claims

Count I alleges that Defendants MMC, Marsh, D&T, Greenberg, Cabiallavetta, Egan, Fanjul, Groves, Hardis, King, Lang, Olsen, Rapport, Schapiro, Simmons, Sinnott, Smith, and Wijnberg made materially misleading statements and omissions throughout the class period and engaged in a scheme to manipulate the market for MMC securities in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder.

Count II alleges that Defendants MMC, Marsh, Greenberg, Cabiallavetta, Egan, Fanjul, Groves, Hardis, King, Lang, Olsen, Rapport, Schapiro, Simmons, Sinnott, Smith, and Wijnberg controlled primary violators of the securities laws in violation of Section 20(a) of the Exchange Act.

Count III alleges that Defendants MMC, D&T, Greenberg, Cabiallavetta, Fanjul, Groves, Hardis, King, Lang, Olsen, Rapport, Schapiro, Simmons, Sinnott, Smith, Wijnberg, Bernard, Coster, Erburu, and Lasser are liable for materially untrue statements and omissions contained in MMC's February 13, 2003 prospectus supplement, filed in connection with its 4.850% bond offering under an earlier registration statement, in violation of Section 11 of the Securities Act of 1933 ("Securities Act").*fn3

Count IV alleges that Defendants Greenberg, Cabiallavetta, Fanjul, Groves, Hardis, King, Lang, Olsen, Schapiro, Simmons, Sinnott, Smith, Bernard, Coster, Erburu, and Lasser controlled primary violators of Section 11 of the Securities Act, in violation of Section 15 of the Securities Act.*fn4

Count V alleges that Defendants MMC, D&T, Greenberg, Cabiallavetta, Fanjul, Groves, Hardis, King, Lang, Olsen, Rapport, Schapiro, Simmons, Sinnott, Smith, Wijnberg, Bernard, Coster, Erburu, and Lasser are liable for materially false or misleading statements or omissions contained in MMC's Exchange Act filings, in violation of Section 18 of the Exchange Act.*fn5

Count VI alleges that Defendants MMC, D&T, Greenberg, Cabiallavetta, Egan, Fanjul, Groves, Hardis, King, Lang, Olsen, Rapport, Schapiro, Simmons, Sinnott, Smith, and Wijnberg are liable to the Pension Fund Subclass for common law fraud and deceit.

Count VII alleges that Defendants MMC, Greenberg, Cabiallavetta, Egan, Fanjul, Groves, Hardis, King, Lang, Olsen, Rapport, Schapiro, Simmons, Sinnott, Smith, Wijnberg, Bernard, Coster, Erburu, and Lasser are liable to the Pension Fund Subclass for negligent misrepresentation.

Count VIII alleges that Defendants MMC, D&T, Greenberg, Cabiallavetta, Egan, Fanjul, Groves, Hardis, King, Lang, Olsen, Rapport, Schapiro, Simmons, Sinnott, Smith, Wijnberg, Bernard, Coster, Erburu, and Lasser are liable to the Pension Fund Subclass for violations of state securities laws.

Defendants have filed eight separate motions to dismiss the Complaint for failure to state a claim upon which relief can be granted and failure to plead with particularity. The moving papers of the Defendants will be referred to by the following aliases: (1) Defendants MMC, Marsh, Cabiallavetta, Coster, Rapport, Smith, Wijnberg, and Bischoff ("Corporate"); (2) Defendant Greenberg ("Greenberg"); (3) Defendant Egan ("Egan"); (4) Defendants Bernard, Erburu, Fanjul, Hardis, King, Lang, Olsen, Schapiro, and Simmons ("Independent Directors"); (5) Defendant Lasser ("Lasser"); (6) Defendant Groves ("Groves"); (7) Defendant Sinnott ("Sinnott"); (8) Defendant D&T ("D&T").


A. Motion to Dismiss Pursuant to Rule 12(b)(6)

Under Federal Rule of Civil Procedure 12(b)(6), "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957), cited in Shah v. Meeker, 435 F.3d 244, 246 (2d Cir. 2006). The role of the court is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Levitt v. Bear Stearns & Co., 340 F.3d 94, 101 (2d Cir. 2003) (internal citations omitted). Accordingly, courts should not dismiss a claim unless, "after accepting all the allegations in the Complaint as true and drawing all reasonable inferences in [the plaintiffs'] favor, the Complaint fails to allege any set of facts that would entitle [them] to relief." Caiola v. Citibank, N.A., 295 F.3d 312, 321 (2d Cir. 2002).

In considering a motion to dismiss, the "court must limit itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference." Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991); see also San Leandro Emergency Medical Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 808-09 (2d Cir. 1996) (holding that documents "integral" to the complaint are properly considered on a motion to dismiss). In addition, "[o]n a motion to dismiss a securities action, a district court may consider documents required to be publicly filed with the S.E.C. that bear on the adequacy of disclosure." City of Sterling Heights Police and Fire Ret. Sys. v. Abbey Nat'l, PLC, 423 F. Supp. 2d 348, 355 (S.D.N.Y. 2006) (citing Kramer, 937 F.2d at 773-74). Accordingly, the Court considers the allegations of the Complaint, documents incorporated therein, and any "publicly filed documents appended to" Defendants' motions to dismiss. Id. (citation omitted).

B.Pleading under Federal Rules of Civil Procedure 8 and 9(b), and the PSLRA

While the rules of pleading in federal court generally require only "a short and plain statement" of the plaintiff's claim for relief, Fed. R. Civ. Proc. 8, averments of fraud must be "stated with particularity." Fed. R. Civ. Proc. 9(b). The PSLRA has expanded on Rule 9(b)'s pleading requirements in the context of securities fraud allegations. "That statute insists that securities fraud complaints 'specify' each misleading statement; that they set forth the facts 'on which [a] belief' that a statement is misleading was 'formed'; and that they 'state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.'" Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 345 (2005) (quoting 15 U.S.C. §§ 78u-4(b)(1), (2)).

The Second Circuit evaluates a securities complaint's compliance with Rule 9(b) and the PSLRA by means of a common formulation. "A complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Stevelman v. Alias Research Inc., 174 F.3d 79, 84 (2d Cir. 1999) (internal quotation marks and citations omitted). Failure to plead with the requisite particularity is a ground for dismissal.


A. Section 10(b) and Rule 10b-5 Claims

Count I of the Complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5. Section 10(b) prohibits conduct "involving manipulation or deception, manipulation being practices . . . that are intended to mislead investors by artificially affecting market activity, and deception being misrepresentation, or nondisclosure intended to deceive." Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000) (quoting Field v. Trump, 850 F.2d 938, 946-47 (2d Cir. 1988)). Rule 10b-5 uses similar language to describe the unlawful behavior proscribed by Section 10(b), making it illegal,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R § 240.10b-5.

Plaintiffs allege that Defendants deceived investors by making various misstatements and omissions during the Class Period in violation of Rule 10b-5(b), and, in less detail, that Defendants are liable for their scheme to manipulate the market for MMC securities in violation of Rule 10b-5(a) & (c).

1. Liability for Misstatements and Omissions

Plaintiffs claim that Defendants made misstatements and omissions concerning MMC's allegedly improper collection of contingent commissions and the nature of the Company's business practices. A claim for relief under the deception branch of Section 10(b) and Rule 10b-5 may only be sustained where plaintiffs allege that the defendants "(1) made misstatements or omissions of material fact; (2) with scienter; (3) in connection with the purchase or sale of securities; (4) upon which plaintiffs relied; and (5) that plaintiffs' reliance was the proximate cause of their injury." Lentell v. Merrill Lynch & Co., 396 F.3d 161, 172 (2d Cir. 2005) (quoting In re IBM Sec. Litig., 163 F.3d 102, 106 (2d Cir. 1998)). Plaintiffs are required to adequately allege each of these elements--material misrepresentations, scienter, connection, reliance, and loss causation--in order to sustain a claim.

Defendants move to dismiss the Rule 10b-5(b) claims on the grounds that Plaintiffs fail to plead (1) any actionable misrepresentations, (2) facts supporting a strong inference of scienter, (3) reliance, or (4) loss causation.

i. The Alleged Misrepresentations

The allegations of the Complaint focus predominantly on MMC's collection of contingent commissions. Plaintiffs do not allege that contingent commissions are per se illegal, nor that contingent commissions constitute fictional revenue, only that MMC maximized contingent commission revenues by engaging in improper behavior (i.e., steering and bid manipulation) and then misled the investing public by making affirmative misstatements and failing to disclose this behavior. Defendants argue that Plaintiffs allege mere corporate mismanagement, which there is no duty to disclose, and that they fail to state any materially misleading statements.

a. Materiality

"At the pleading stage, a plaintiff satisfies the materiality requirement of Rule 10b-5 by alleging a statement or omission that a reasonable investor would have considered significant in making investment decisions." Ganino, 228 F.3d at 161 (citations omitted). The Second Circuit has "consistently rejected a formulaic approach to assessing the materiality of an alleged misrepresentation," but has advised that, "when presented with a Rule 12(b)(6) motion, 'a complaint may not properly be dismissed . . . on the ground that the alleged misstatements or omissions are not material unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.'" Id. at 162 (quoting Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985)). In the context of alleged omissions, "there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988) (citing TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).

Plaintiffs argue that Defendants' failure to disclose the alleged misconduct at Marsh constitutes a material omission. The Complaint alleges that contingent commissions comprised more than 16% of MMC's risk and insurance revenues, and over 50% of the Company's total profits, by 2003. (Compl. ¶ 104.) Further, Plaintiffs allege that MMC claimed to be a client-focused company and that it derived the majority of its revenue from its provision of risk and insurance services to its clients. (Compl. ¶¶ 3, 102.) Despite MMC's representations and the importance of its provision of client services to the Company's revenues, the steering and bid manipulation at Marsh was widespread. This contention is supported by specific factual allegations of systemic steering within Marsh's Global Broking division and MMC's abrupt elimination of all such agreements immediately after the NYAG complaint was filed. (Compl. ¶¶ 226, 26.)

Taking the allegations of the Complaint as true, the Court finds that Plaintiffs have sufficiently alleged the materiality of the undisclosed misconduct to MMC's bottom line. A rational jury could conclude that a reasonable investor would find it significant that MMC was generating substantial earnings from its improper business practices and jeopardizing the client relationships central to its largest business segment by placing insurance business with the insurance providers offering MMC the highest commissions, rather than those providers ...

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