Coverage: Ex-AIG CEO Greenberg settles 12-year-old case
Maurice “Hank” Greenberg, the former American International Group Inc. chief executive, has reached a settlement that ends his 12-year battle with the New York attorney general’s office.
Karen Freifeld of Reuters had the news:
“After over a decade of delays, deflections and denials by Mr. Greenberg, we are pleased that Mr. Greenberg has finally admitted to his role in these fraudulent transactions,” New York Attorney General Eric Schneiderman said in a statement.
Greenberg, 91, will pay about $9 million and former AIG Chief Financial Officer Howard Smith will pay about $900,000 to settle charges first brought in 2005 by then-New York Attorney General Eliot Spitzer.
The former executives were accused of overseeing a $500 million transaction with General Re, a unit of Warren Buffett’s Berkshire Hathaway Inc, that boosted AIG loss reserves.
They were also faulted for a transaction with Capco Reinsurance Co that converted a $210 million underwriting loss from an automotive warranty program into an investment loss.
“I knew these facts at the time I initiated, participated in and approved these two transactions,” Greenberg said in a statement. Smith also admitted he knew the facts when he participated in and approved the transactions.
David Boies, a lawyer for Greenberg, in a statement said the attorney general had no evidence that Greenberg was aware at the time he approved the transactions that there was anything improper, “let alone that Mr. Greenberg was aware of any fraud.”
Randall Smith of the New York Times reports that the settlement comes after two months of talks:
After negotiations spanning about two months, the settlement was a quiet conclusion to a case that began during an era when Mr. Spitzer extracted large fines after accusing Wall Street research analysts of publishing biased research, mutual fund managers of shady trading and insurance brokers of rigging bids and receiving kickbacks. The Enron and WorldCom accounting frauds had shaken corporate boards.
But Mr. Greenberg was determined to fight his case, and both sides dug in for a long battle. Neither Mr. Greenberg nor Mr. Spitzer have the same jobs they had in 2005, having receded from those prominent roles.
The trial began in September before New York State Supreme Court Justice Charles E. Ramos after 11 years of delays and legal maneuvering, much of it as Mr. Greenberg appealed rulings by the judge. After his testimony and cross-examination in the trial, Mr. Greenberg and the lawyers arguing for the state began mediation in December. The trial had been set to resume last month, but was postponed pending the talks.
The former executives were accused of overseeing two sham reinsurance deals aimed at duping A.I.G. investors. One deal turned auto warranty insurance losses into investment losses; the other inflated A.I.G. reserves by $500 million. The charges led to Mr. Greenberg’s ouster in 2005 as chief of A.I.G., which he had built into a global insurance leader.
Kevin Dugan of the New York Post reports that Greenberg is not barred from running a public company:
Greenberg was not barred from ever running a public company — something the suit sought — allowing both sides to claim victory.
“Mr. Greenberg did not admit to any fraud at all,” David Boies, Greenberg’s longtime lawyer, told The Post.
Greenberg stepped down as CEO of AIG in 2005 after 35 years atop the insurance giant. He currently runs C.V. Starr, a private insurer.
The $9 million penalty is less than the $16.5 million that Greenberg had earlier offered to settle the suit, Boies said — though the superstar lawyer didn’t disclose other terms of earlier potential deals.
The New York v. Greenberg trial opened last September, but was halted as the two sides tried to hammer out a deal. Lawyers for both Greenberg and Schneiderman have been in mediation for the past month or so.
Greenberg had gotten testy when he was called onto the stand in September and October, needling the prosecutor and refusing to answer questions directly.