AIG, Greenberg sued by Spitzer
BY JESSE WESTBROOK
May 28, 2005
American International Group and its former CEO, Maurice (Hank) Greenberg, were sued by state Attorney General Eliot Spitzer for allegedly using accounting tricks to distort the insurer's finances and mislead regulators.
AIG, the world's biggest insurer, used sham reinsurance contracts and other transactions to understate liabilities for claims and hide losses, Spitzer said yesterday. The complaint follows New York-based AIG's admission May 1 that improper accounting overstated its net worth by $2.7 billion.
"The irony of this case is that AIG was a well-run and profitable company that didn't need to cheat," Spitzer said in a statement, which indicated the suit was filed yesterday in Manhattan Supreme Court. "And yet, the former top management routinely and persistently resorted to deception and fraud in an apparent effort to improve the company's financial results."
Spitzer and the New York Insurance Department, which was a party to the suit, said Greenberg was "personally involved" in negotiating fraudulent transactions and was "directly" responsible for the company's alleged misconduct.
Spitzer also accused Greenberg of calling AIG's traders from his private jet and ordering them to buy AIG shares in February to prop up its stock price.
Shares of AIG, which rose $1.63 yesterday to $55.71, had fallen 26% since the disclosure of subpoenas Feb. 14.
The complaint, which also names former chief financial officer Howard Smith, follows a three-month probe that triggered the end of Greenberg's 38-year reign, wiped out almost $50 billion of AIG's market value and tainted Warren Buffett's Berkshire Hathaway.
AIG, which also is being probed by the Securities and Exchange Commission, will probably move quickly to settle, while Greenberg, 80, may seek to protect his legacy, said Jacob Frenkel, a former federal prosecutor.
"The AIGs of the world don't want to get bogged down in a lawsuit with the attorney general of New York or the SEC for that matter," said Frenkel, who now practices law in Rockville, Md.
"But for an individual of Mr. Greenberg's stature, the outcome of this case follows him for the rest of his life, which may make the desire for vindication greater," he added.
Spokesmen for Greenberg, AIG, and Smith didn't comment.
"We expect to settle with AIG," said Spitzer spokesman Darren Dopp.
Meanwhile, Ohio's pension funds asked a judge to force Greenberg's wife Corinne to return $2.7 billion he gave her in March.
The fund is the lead plaintiff in a class- action suit against AIG and Greenberg.