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Updated from 9:43 a.m. EST

Marsh & McLennan


is setting up an $850 million restitution fund as part of a settlement with New York Attorney General Eliot Spitzer over allegations the firm engaged in an illegal insurance industry kickback and bid-rigging scheme.

The settlement is one of the largest reached by Spitzer during his three-year campaign against corporate wrongdoing.

The settlement comes nearly four months after Spitzer filed civil fraud charges against Marsh in a sweeping investigation into abuses in the insurance industry. Spitzer charged that Marsh's big insurance broker division was at the forefront of an industrywide conspiracy that had driven up prices for insurance products for corporations and consumers.

The charges led to the ouster of Jeffrey Greenberg as chief executive of Marsh. In the immediate aftermath of the scandal, Marsh's stock lost nearly 47% of its value, the company announced a sweeping overhaul of its insurance commission practices, and it said it was slashing up to 3,000 jobs.

In early trading Monday, Marsh was up 93 cents, or 3%, to $32.02, as investors expressed relief that the company was putting its regulatory woes behind it.

"Today's settlement is a significant step forward for Marsh & McLennan, its people, its clients and its shareholders," said Michael Cherkasky, Marsh's CEO and president, in a prepared statement.

In a separate statement, Spitzer's office noted that Marsh would issue an apology for its "unlawful" conduct.

"To its credit, Marsh is not disputing the problems identified in our original complaint," said Spitzer.

However, in its press release, Marsh goes too pains to note that the restitution fund it is setting up should not be seen as "a fine or a penalty."

The settlement gives Marsh four years to establish the restitution fund. The first $255 million payment is due on June 1.

In the third quarter of last year, Marsh took a charge to set up a $232 million legal reserve to pay for the settlement. The company said its fourth-quarter earnings will include an additional $618 million charge to cover the remainder of the deal.

The investigation centered around hundreds of millions dollars in so-called contingent commissions that Marsh collected each year from big insurers such as

American International Group





. The commissions, which Spitzer calls kickbacks, were incentive payments to reward Marsh for directing insurance contracts to the carriers.

Spitzer additionally found that Marsh employees had engineered a price-fixing scheme that resulted in insurers submitting fictitious price quotes for insurance contracts. Since the filing of the civil charges in October, a number of Marsh employees and insurance executive have pleaded to criminal charges in the bid-rigging probe.

In announcing the settlement, Marsh also released the results of an internal investigation conducted by its outside counsel, the New York law firm Davis Polk & Wardwell. The lawyers said they found "relatively limited" evidence of illegal bid-rigging in the insurance brokerage division. Most of the wrongdoing was confined to employees working in Marsh's excess property and casualty and workers compensation groups.

"While the number of such instances that we have identified at this point is relatively limited, the individuals have pleaded guilty to date have state that such discussion took place regularly," the lawyers said. "We anticipate that additional examples of this type of conduct may well be identified in these and other product lines as the government investigations continues."

Indeed, Spitzer, who is running for governor of New York in 2006, is continuing to pursue his investigation into the insurance industry. The New York Democrat has said he's interested in bringing additional criminal cases in the matter.