Greenberg’s ‘Day of Reckoning’ Over AIG Fraud Claims Arrives

Hank Greenberg: AIG Fraud Suit Had Political Motives
  • Former AIG head has fought New York lawsuit for 11 years
  • Greenberg, Smith accused of orchestrating sham transactions

It’s a day of reckoning --- or the moment of truth -- for former American International Group Inc. head Maurice "Hank" Greenberg.

More than 11 years after he was sued by former New York Attorney General Eliot Spitzer, Greenberg went on trial Tuesday to fight claims that he and former Chief Financial Officer Howard Smith rigged the books with two sham transactions at AIG to hide the insurer’s true financial condition.

Greenberg leaves court in New York, on Sept. 13.
Greenberg leaves court in New York, on Sept. 13.
Photographer: Michael Nagle/Bloomberg

Assistant Attorney General David Ellenhorn noted it took less time to fight World War II than to get Greenberg into court. But his “day of reckoning” has arrived, Ellenhorn said in his opening statement in a courtroom packed with about 50 people, some of whom didn’t have a place to sit.

Actually, it’s “the moment of truth,” countered Greenberg’s lawyer, David Boies, in his opening statement. The attorney general doesn’t have a single witness or document that will prove that his client orchestrated the transactions, Boies said.

Spitzer sued AIG, Greenberg and Smith in May 2005. Greenberg and Smith had resigned earlier that year amid an accounting scandal, and New York-based AIG then restated its earnings, lowering them by $3.4 billion and agreeing to pay $1.64 billion to settle the claims without admitting or denying wrongdoing. Spitzer went on to become governor before resigning in 2008 amid a prostitution scandal.

Greenberg and Smith continued to fight to have the suit thrown out over the next decade, while Spitzer’s successors as the state’s top prosecutor -- first Andrew Cuomo before he was elected governor and now Eric Schneiderman -- kept pushing for a trial.

In June, the state’s top court in Albany again denied Greenberg’s bid to have the suit dismissed, finally clearing the way for a non-jury trial before New York State Supreme Court Justice Charles Ramos.

“This case is not about Eliot Spitzer,” Ellenhorn said. “It’s not about Andrew Cuomo or Eric Schneiderman. It’s about Greenberg and Smith, and the frauds that they perpetuated.”

Greenberg’s argument that the case should have been abandoned a long time ago "is simply unacceptable" and would send the wrong message, Ellenhorn said. "For the government to succumb to that kind of approach would send a terrible message to the business community and the public at large."  

Personal Vendetta

To this day, the 91-year-old Greenberg maintains Spitzer had a personal vendetta and sued after Greenberg accused him of prosecutorial overreach.

Eliot Spitzer
Eliot Spitzer
Source: CNBC/NBCU Photo Bank via Getty Images

"This case simply is devoid of any admissible evidence that ties Mr. Greenberg to anything that is improper in these two transactions," Boies said.

The outcome of the trial should help clarify the reach of the Martin Act, an almost century-old state law that gives New York prosecutors broad powers to probe white-collar crime. The proceedings are expected to last through January.

The state is no longer seeking damages to compensate investors after Greenberg and other AIG executives agreed in 2009 to pay $115 million to settle shareholders lawsuits and $15 million to resolve a U.S. Securities and Exchange Commission suit without admitting wrongdoing.

The attorney general’s office now wants to bar Greenberg and Smith from serving as officers or directors of public companies and force them to give up more than $50 million that they received in bonuses.

The lawsuit stems from two reinsurance transactions: a deal with Berkshire Hathaway Inc.’s General Reinsurance Corp. used to reverse a decline in loss reserves at AIG, and an agreement with CAPCO Reinsurance Co. Four former Gen Re executives and one from AIG were convicted of accounting fraud in 2008 but won reversals in 2011. Federal prosecutors agreed to drop the charges in 2012 under deferred-prosecution agreements after the former executives admitted “aspects” of the Gen Re deal were fraudulent.

The case is State of New York v. Greenberg, 401720-2005, New York state Supreme Court (Manhattan).

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