Ex-American International Group Inc. (AIG) Chief Executive Officer Maurice “Hank” Greenberg must face a fraud lawsuit brought by the New York attorney general’s office, the state’s highest court ruled.
The state can pursue its case over Greenberg’s role in a sham reinsurance transaction and can seek an injunction banning him from the securities industry and from serving as an officer or director of a public company, the state Court of Appeals ruled today.
The decision is a blow to Greenberg, who has long argued that the lawsuit, originally filed in 2005 by then-Attorney General Eliot Spitzer, is groundless.
Eric Schneiderman, who took over the case when he became attorney general, contends that Greenberg and former AIG Chief Financial Officer Howard Smith bear responsibility for the transaction with General Reinsurance Corp. in 2000 and 2001 that inflated AIG’s loss reserves by $500 million.
“We are confident that the action will be dismissed by the lower courts because the state cannot demonstrate that it is entitled to injunctive or disgorgement remedies,” Greenberg’s attorney, David Boies of Boies, Schiller & Flexner LLP, said in a statement.
Greenberg, 88, argued the suit was fatally flawed after court approval of a $115 million settlement of a class-action lawsuit that resolved claims against him and Smith.
After the settlement was approved, the attorney general’s office said in an April letter to the appeals court that although it was withdrawing its claim for damages in the case, it seeks to hold Greenberg and Smith personally accountable and ban them from the securities industry and from serving as public company officers or directors.
“Attorney General Schneiderman is committed to ensuring that anyone who commits fraud is held accountable for their actions no matter how wealthy they are or how many powerful friends they have,” Damien LaVera, a spokesman, said in a statement. “Today’s decision means we will have an opportunity to establish in court Hank Greenberg’s role in this fraud and hold him accountable.”
Boies argued that the state abandoned any effort to get an injunction and was trying to “resuscitate a case that is dead” after the shareholder settlement. Greenberg also consented to a U.S. Securities and Exchange Commission injunction that is broader than what the state seeks, Boies wrote in April to the appeals court.
“There is no merit to the case and no basis for any injunctive relief,” Smith’s attorney, Vincent Sama at Kaye Scholer LLP, said in a statement. “The New York attorney general has never actively pursued any injunctive relief against the defendants during the eight years this action has been pending.”
The appeals court rejected the argument that the state failed to preserve its bid for an injunction.
“There is no doubt room for argument about whether the lifetime bans that the attorney general proposes would be a justifiable exercise of a court’s discretion; but that question, as well as the availability of any other equitable relief that the attorney general may seek, must be decided by the lower courts in the first instance,” the appeals court said.
The original case is State of New York v. Greenberg, 401720-2005, New York State Supreme Court, New York County (Manhattan).