Former American International Group Inc. Chief Executive Officer Maurice “Hank” Greenberg lost an appeal seeking dismissal of a lawsuit alleging a fraudulent transaction with Warren Buffett’s General Reinsurance Corp.
Former New York Attorney General Eliot Spitzer sued Greenberg and AIG’s former chief financial officer, Howard Smith, in 2005 in New York state Supreme Court in Manhattan, accusing them of using sham reinsurance deals and other transactions to distort the insurer’s financial condition.
An appeals court in Manhattan, in a 4-1 ruling posted today, affirmed Justice Charles Ramos’s order from October 2010 denying motions by Greenberg and Smith to dismiss the suit, saying that evidence “presents triable issues of fact as to whether defendants knew of, or participated in the fraudulent aspects” of the alleged schemes.
“We are pleased that the court has paved the way for a trial to hold the defendants accountable for perpetrating a major reinsurance scheme to defraud investors,” James Freedland, a spokesman for New York Attorney General Eric Schneiderman, said in a statement.
Justice James Catterson, who dissented from the ruling, said the claims against Greenberg and Smith under state law are preempted by federal statutes.
Even if they aren’t, the complaint should be dismissed “due to the utter failure of the New York Attorney General to oppose the defendants’ motion with evidence in admissible form or to put forward an excuse for the failure to do so after five years of investigation and discovery,” Catterson wrote.
Lawyers for Greenberg and Smith said in a joint statement they intend to seek permission to appeal the court’s decision to the state Court of Appeals in Albany.
“In the meantime, Mr. Greenberg and Mr. Smith expect that the federal court, which has preliminarily approved a settlement of federal securities claims on behalf of a class of AIG shareholders, will approve that settlement resulting in additional grounds for the dismissal of this wasteful action,” Vincent Sama, a partner with Kaye Scholer LLP representing Smith, said in the statement.
Greenberg and Smith “believe the Appellate Division should have gone even further, however, and as stated in the well-reasoned opinion of Judge Catterson, dismissed the Attorney General’s action in its entirety,” Greenberg’s attorneys, David Boies of Boies, Schiller & Flexner LLP and John Gardiner of Skadden, Arps, Slate, Meagher & Flom LLP, said in the statement.
AIG, once the world’s largest insurer, ousted Greenberg in March 2005, two months before Spitzer sued him and Smith, alleging they misled regulators and investors.
AIG, based in New York, eventually restated its earnings, lowering them by $3.4 billion, and agreed to pay $1.64 billion to settle claims by Spitzer and other regulators, without admitting or denying wrongdoing.
Four former Gen Re executives, including ex-CEO Ronald Ferguson, and one from AIG, Christian Milton, were convicted in 2008 at a fraud trial focusing on AIG’s transaction with Gen Re.
The appellate court reversed Ramos’s order granting the attorney general’s request for summary judgment on another transaction known as CAPCO, saying that “summary resolution of their knowledge or participation in this alleged fraud cannot be determined as a matter of law.”
The case is State of New York v. Greenberg, 401720-2005, New York state Supreme Court (Manhattan).