Greenberg Seeks to Dismiss N.Y. AG’s Civil Case
Maurice "Hank" Greenberg, who led American International Group for nearly four decades before being forced out during investigations into AIG's accounting practices, is asking a New York civil court to dismiss a suit filed by the New York attorney general that seeks to hold him personally liable for sham reinsurance transactions.
The legal documents seeking summary judgment have been filed with New York State Supreme Court Justice Charles Ramos in Manhattan, who's scheduled a April 20 conference on the matter.
The lawsuit seeks to hold both Greenberg and Howard Smith, former chief financial officer of AIG, liable under New York's Martin Act, under which it is illegal to commit any fraud in connection with securities transactions.
The attorney general's lawsuit cites a sham finite reinsurance contract with General Reinsurance Corp. that boosted AIG's loss reserves without any actual transfer of risk and transactions with Capco Reinsurance Co. Ltd., a special purpose entity AIG created and used to conceal underwriting losses by converting them improperly to capital losses.
Regulators have said Greenberg instigated the Gen Re transactions in response to analysts' criticism of AlG's declining loss reserves, and that by accounting for them improperly as real reinsurance, AlG falsely reported increases to both loss reserves and premiums written. A former AIG executive and four former Gen Re executives were convicted of securities fraud in connection with the sham reinsurance transactions (BestWire, Feb. 25, 2008).
Greenberg maintained his innocence, but had refused to testify in the case until this March after a five-year statute of limitations on possible criminal charges ran out in February.
In Greenberg's deposition, he testified that even today, he believes the Gen Re transaction was a legitimate transaction. Greenberg also denied knowing of any side deal to return premium back to Gen Re.
In a legal brief, New York Attorney General Andrew M. Cuomo said, "It is not possible to find greater involvement in a fraudulent transaction by a chief executive officer."
Cuomo said Greenberg owned a substantial amount of AIG stock at that time, and followed the stock's performance with a high level of interest on a daily basis. Cuomo said that for every $1 that AIG's stock moved, Greenberg's holdings increased or decreased $65 million.
In his testimony, Greenberg said, "I can't recall whether I followed it on a daily basis. I traveled a great deal. It's difficult to say on a daily basis. If I was in the office, obviously I would know the price of the stock."
Last August, without admitting any wrongdoing, Greenberg agreed to pay $15 million to settle U.S. Securities and Exchange Commission's allegations of improper accounting transactions at AIG, while Smith agreed to pay $1.5 million to settle similar charges (BestWire, Aug. 6, 2009).
A statement issued on Greenberg's behalf at the time, Greenberg said he "appreciates the SEC's recognition that he personally should not be charged with any fraud... Greenberg does not admit even this claim, although he acknowledges the obvious fact that he was CEO of AIG at the time of the accounting at issue."
In 2006, AIG consented to a final judgment on SEC accounting fraud charges, without admitting or denying allegations that it falsified its financial statements from at least 2000 until 2005 through a variety of sham transactions and entities, and reported materially false and misleading information about its financial condition. AIG paid a total of $800 million, including $100 million in penalties (BestWire, Feb. 10, 2006).
In 2008, AIG nearly fell into bankruptcy but was saved by a federal bailout of about $182 billion, including buying almost 80% of AIG's shares.
Most AIG insurance companies have current Best's Financial Strength Ratings of A (Excellent).
AIG's stock (NYSE: AIG) was trading at $40.15 on the afternoon of April 13, down 2.6% from the previous close.
(By Meg Green, senior associate editor, BestWeek: [email protected])
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