AIG Unfazed By Zarb’s Link To Fraud Case
By Daniel Hays
National Underwriter News
April 13, 2005
Despite being under intense regulatory scrutiny, American International Group said it has no concerns about Non-Executive Chairman Frank Zarb's involvement in a civil fraud verdict against an insurance brokerage he previously headed, a representative for the beleaguered carrier said.
New York Attorney General Eliot Spitzer's office, which is scrutinizing AIG's past conduct, would not comment on the case.
Steven A. Rautenberg, AIG's vice president of communications, said that AIG's directors were aware of the case when they elected Mr. Zarb to the board. He dismissed it as a 10-year-old case involving one employee, and Mr. Zarb was not a defendant.
Involved in the case were allegations that Mr. Zarb, while chief executive officer of the Alexander & Alexander insurance brokerage, lied repeatedly about the firm's pending sale to Aon.
The suit was brought by former New York Giants football star Phil McConkey, who charged that Mr. Zarb convinced him to leave a lucrative post at Ross & Company brokerage to join A&A by denying that he intended to sell the company. Shortly after Aon purchased A&A, Mr. McConkey was terminated.
“By lying to hundreds of employees, clients and ultimately shareholders, [Mr.] Zarb induced them to rely on false information in making decisions affecting their careers, businesses, and stock purchases and sales,” according to a brief filed with the New Jersey Supreme Court by Mr. McConkey's attorney, Neil Mullin of the Smith Mullin law firm.
Mr. Zarb did not respond to requests for comment.
The state's high court in 2003 upheld the verdict, which included $5 million in punitive damages against the company.
While Mr. Zarb was removed as a defendant before the case went to trial in Essex County Superior Court, the jury was not made aware of that fact and, according to Mr. Mullin, it was Mr. Zarb's actions that were the basis of the suit and subsequent verdict.
As part of Mr. Zarb's contract with A&A, he was entitled to $23 million in severance if the company was taken over--an amount he collected after the Aon takeover.
Among the evidence produced at trial was A&A's Dec. 16, 1996 proxy filing signed by Mr. Zarb, which said that from January to May 1996, Aon Chairman Patrick G. Ryan and Mr. Zarb met to discuss a possible merger and sale, continuing discussions that began in 1994. Mr. McConkey joined the firm in May 1996.
In his testimony, Mr. McConkey said Mr. Zarb reassured him that in terms of any sale, A&A was “the predator, not the prey.”
According to Mr. Mullin's brief, Mr. Zarb used Mr. McConkey to assure hundreds of A&A employees and customers that A&A had no intention of selling or merging the company.
The proxy statement revealed that before the deal went through there was extended haggling between then AIG CEO Maurice Greenberg and Mr. Ryan over how much Aon would have to pay AIG for shares of A&A preferred stock it had bought when Mr. Zarb became CEO.
Under the terms of AIG's $175 million stock purchase, it was entitled to $350 million if the company was sold. AIG eventually agreed to take $317.5 million for the A&A shares .
Mr. Greenberg left AIG last month—first as CEO, then as chairman--after he came under scrutiny from Mr. Spitzer's office concerning his involvement with suspected fraudulent offshore transactions that improved AIG's financial picture. Mr. Zarb replaced him as non-executive chairman.
The attorney general's office did not respond to telephone and e-mail inquiries concerning whether it was aware of, or concerned about Mr. Zarb's role in the McConkey case.