AIG's Insurers Settle Investor Suit Over Greenberg
Former AIG CEO Maurice "Hank" Greenberg
Peter Foley/Bloomberg
Maurice "Hank" Greenberg, former chief executive officer of American International Group Inc. (AIG).
Maurice "Hank" Greenberg, former chief executive officer of American International Group Inc. (AIG). Photographer: Peter Foley/Bloomberg
American International Group Inc.’s insurers agreed to a settlement of claims former top executive Maurice “Hank” Greenberg deceived investors that provides $90 million for the company, according to a court filing.
Insurers covering AIG managers agreed to resolve claims that Greenberg, the former chief executive officer, and other executives used accounting tricks and fraudulent schemes to hide problems, according to the filing yesterday in Delaware Chancery Court in Wilmington. The money is being paid to AIG and not investors, and another $60 million is going to Greenberg and other defendants to reimburse legal fees, the filing shows.
“This finally puts an end” to legal disputes between AIG and Greenberg, said Phillip Phan, professor at the Johns Hopkins Carey Business School in Baltimore. “I’m not sure observers would say Greenberg comes out smelling like roses, I just think everyone involved wants to be able to put this behind them.”
The settlement in the case, a so-called derivative suit filed by investors against executives and directors on behalf of the company, comes a month after AIG separately agreed to pay $725 million to investors who lost money amid the company’s share decline. AIG accepted a U.S. government bailout in September 2008 that has swelled to $182.3 billion.
‘Resolves Longstanding Claims’
“This settlement resolves longstanding shareholder derivative claims asserted on behalf of AIG against more than 20 current and former officers and directors,” Mark Herr, an AIG spokesman, said in an e-mail. AIG rose $1.21, or 3.6 percent, to $35.20 at 4:15 p.m. in New York Stock Exchange trading.
AIG said in November that it settled all legal disputes with Greenberg and would reimburse as much as $150 million in fees. Greenberg and the company agreed not to make disparaging statements about each other. The former CEO argued that the November deal released him from derivative claims, AIG said this month in a filing.
Lee Wolosky, a lawyer with Boies, Shiller & Flexner LLP who represents Greenberg, said in an e-mailed statement that all litigation between the former CEO and AIG “was settled with Mr. Greenberg paying nothing and other parties paying money to Mr. Greenberg.”
Greenberg, 85, built AIG into the world’s largest insurer over almost four decades until he was forced to retire in March 2005 amid state and federal probes into a reinsurance transaction. Lawsuits kept AIG and its former top executive in court since his departure.
AIG Restatement
Former New York Attorney General Eliot Spitzer sued Greenberg in 2005, alleging he misled regulators and investors. Spitzer dropped portions of the suit in 2006 and Greenberg asked a court to dismiss the rest.
AIG restated earnings and agreed to pay $1.64 billion to settle claims by Spitzer and other regulators, without admitting or denying wrongdoing. In court papers filed in July 2006, Greenberg argued AIG’s 2005 restatement was unnecessary and designed to force him to retire. He also denied any wrongdoing.
“Mr. Greenberg has consistently maintained that AIG’s 2005 restatement and subsequent settlement with regulators were manufactured to serve the agenda of Eliot Spitzer,” Wolosky said in the e-mailed statement.
Greenberg agreed last year to pay $15 million to end a U.S. Securities and Exchange Commission investigation into AIG’s accounting. He didn’t admit or deny wrongdoing, the SEC said.
Move to Dismiss
The settlement this week resolves derivative litigation over Greenberg’s tenure at AIG filed in Delaware and New York, according to court papers. Investors sued Greenberg and other former executives on behalf of the company in both states’ courts and in federal court in New York.
Once the deal is approved by a judge, investors’ lawyers will move to dismiss the New York suits, according to the filing. Stuart Grant, a partner in Wilmington, Delaware’s Grant & Eisenhofer who represents investors in the case, declined to comment on the accord.
In their Delaware suit, investors alleged insiders -- including Greenberg, former Vice Chairman Edward Matthews, ex- Director Thomas Tizzio, and former Chief Financial Officer Howard Smith -- used fraudulent ploys to hide the insurer’s deteriorating financial condition.
Top executives gave approval to schemes involving bid rigging and disguising AIG’s workers’ compensation premiums in order to avoid paying fees on them, to deceive investors about the insurer’s financial health, the suits alleged.
‘Criminal Organization’
In deciding investors could press ahead with their derivative claims, Chancery Court Judge Leo Strine concluded in a February 2009 ruling the suit supported the theory that “AIG’s Inner Circle,” which included Greenberg, Tizzio and Matthews, “led a criminal organization.”
“The diversity, pervasiveness and materiality of the alleged financial wrongdoing at AIG is extraordinary,” the judge added.
Lawyers for Greenberg, Smith and AIG met with a mediator in February and March to hammer out a settlement of those allegations, according to court filings made public yesterday.
The accord covers more than 20 former AIG executives who worked at the insurer while Greenberg was its top executive, AIG officials said today. None of those executives are paying money individually as part of the agreement, according to court filings.
Judge to Decide
Grant, the lead lawyer for investors in the case, is seeking more than $21 million in legal fees and expenses out of the $90 million AIG is getting in the settlement, according to the filing. The former executives and AIG have agreed not to oppose that request, the filing shows.
Strine must still decide whether to give the settlement final approval.
In 2008, AIG investors in another Chancery Court lawsuit won approval for a $115 million settlement over allegations AIG overpaid broker C.V. Starr & Co. by $1 billion in alleged sham commissions. Greenberg controls Starr.
The derivative case is American International Group Inc. Consolidated Derivative Litigation, CA769-VCS, Delaware Chancery Court (Wilmington).
To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.
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