UPDATE: Judge Calls NY's Case Against Greenberg 'Devastating'
By Chad Bray
Dow Jones Newswire
April 21, 2010
NEW YORK -(Dow Jones)- A state judge described a long-running civil case by the New York Attorney General's office against former American International Group Inc. (AIG) Chief Executive Maurice R. "Hank" Greenberg as "devastating" at a hearing on Tuesday.
New York State Supreme Court Justice Charles Ramos in Manhattan is considering whether to grant summary judgment in favor of the attorney general's office or Greenberg, who has asked for the case to be dismissed.
"Don't hold your breath," the judge told the parties at the end of the day Tuesday, saying it would be some time before he issued a decision.
"Mr. (David) Ellenhorn has put together a devastating case, a very strong case," Ramos told David Boies, a lawyer for Greenberg. "And, we both know it."
David Ellenhorn is a lawyer from the attorney general's office.
The case, originally filed in 2005, grew out of a probe into the insurer's accounting. Greenberg was forced from the insurer in 2005 amid accounting probes by the attorney general's office and other regulators.
Last month, Greenberg gave testimony in the case about a controversial reinsurance transaction in 2000 between AIG and General Re Corp., a unit of Warren Buffet's Berkshire Hathaway Inc (BRKA, BRKB).
Greenberg, who has denied wrongdoing, agreed to give a deposition of the transaction, saying the statutes of limitations for any potential criminal charges had passed.
He had exerted his Fifth Amendment right against self-incrimination in prior depositions in the civil case in September 2008 and in October 2008.
The attorney general's office claims the reinsurance transaction was a sham and designed to improperly mask a drop in AIG's reserves. Ellenhorn said the transaction was designed to have "no risk" and, as a result, was improper.
Seven people, including Gen Re's former chief executive, Ronald Ferguson, were convicted or pleaded guilty to criminal charges related to the reinsurance transactions.
In 2005, AIG said it would restate more than four years of its earnings. In 2006, AIG agreed to pay more than $1.6 billion to settle accounting fraud allegations by the New York attorney general's office and the U.S. Securities and Exchange Commission.
In January 2009, Gen Re agreed to pay $92 million as a part of a settlement with the federal government related to two alleged sham reinsurance transactions with AIG.
At Tuesday's hearing, Ellenhorn argued that Greenberg not only knew about the 2000 reinsurance transaction, but it was his "baby." Ellenhorn said Greenberg, who had a reputation as a "micro manager," repeatedly claimed in depositions he wasn't aware of the details of the transactions.
Greenberg drilled down so deeply on the details of the transaction "you could get to the Arctic ice," Ellenhorn said. "It's ridiculous, it's preposterous, it's embarrassing for him to say such a thing," he said.
Boies, a lawyer for Greenberg, argued the transaction wasn't material and that the insurer's reserves, without the Gen Re transaction, actually increased in 2000 and in 2001. He also argued that investors were more focused on the insurer's results, than its reserves.
Robert Morvillo, another lawyer for Greenberg, said Greenberg believed the reinsurance transaction was a legitimate one.
"He initiated a transaction he thought was perfectly legitimate," Morvillo said.
Morvillo also attacked allegations by the attorney general's office that Greenberg and Ferguson entered into a secret "side agreement" in which the reinsurance transaction would have no risk.
Morvillo said Greenberg had two conversations with Ferguson, the former Gen Re CEO, about the deal.
One was to ask him to about possibly entering a finite reinsurance transaction and the other was after Gen Re said it could engage in such a transaction, Morvillo said. The details were left up to subordinates, Morvillo said.
Greenberg wasn't interested in the details," Morvillo said.
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