More On Legal & Compliancefrom The Advisor's Professional Library
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David Wood, a partner at Anderson, Kill in Ventura, Calif., said he was “staggered” that AIG would be considering joining a suit against the federal government as requested by Greenberg.
Robert Hunter, director of insurance for the Consumer Federation of America, agreed.
Hunter added that “AIG should do the right thing Wednesday morning and toss Greenberg and his lackeys out the door when they arrive to make their pitch for AIG to join this ugly lawsuit. The courts should quickly do likewise.
For his part, Wood said, “I am staggered by this.”
Wood, in an article in the New York Times in early 2009, was the first to publicly raise the issue that AIG policyholders might be at risk because AIG’s insurance subsidiaries were being used to cross-guarantee the speculative trading at the AIG Financial Products (AIGFP) subsidiary that was the source of most of its problems.
The report was released in October 2010. These were confirmed through a report conducted by an outside firm and commissioned by the Pennsylvania Insurance Department that indicated that the insurance subsidiaries, both property and casualty, and life, had cross-guaranteed the trading of AIGFP.
The Federal Reserve stepped in in September after AIGFP was unable to meet margin calls on $2.77 trillion in credit default swaps that insured bank purchases of mortgage-backed securities and so-called “synthetic securities,” called collateralized debt obligations.
“AIG always had the option of reorganizing through the courts,” Wood said. But, in this case, he said, “When AIG talks about a ‘superior duty to shareholders,’ what its board means is that it has a superior duty to Greenberg.”
Wood said that what Greenberg is complaining about is that AIG was in such unsound condition when the Fed and taxpayers stepped in that it had to take whatever the government was offering as an alternative to bankruptcy.”
Wood is an insurance lawyer in California for Anderson, Kill, which specializes in representing claimants against insurers. Wood cited the common law doctrine of economic duress, which allows a plaintiff to escape liability or to back out of a deal if the counterparty was “effectively holding a gun to its head” if the plaintiff didn’t agree to the business terms.
“That is doing something not right, that is duress,” Wood said. “With AIG, it had no choice if it wanted to remain viable but to accept the government’s punitive terms.”
Under this doctrine, AIG had determined that it had no alternative but to accept the government’s terms.”
AIG always had the option of following for bankruptcy. It didn’t do this over the objections of Greenberg or his company, Starr International, at this time.”
What is staggering to Wood “is the fact that the government, the U.S. taxpayer, took a tremendous risk with our hard-earned dollars to bail out AIG and keep it from declaring bankruptcy.”
Hunter charged that Greenberg was a “man who has, for decades, put profit ahead of policyholders is now trying to turn the federal taxpayer into his next victim.”
He called the litigation “outrageous.”
Hunter said that, Greenberg’s old AIG had long been known among insurance experts as one of the most difficult companies in America from which to obtain a fair claim settlement.
But sometimes, Hunter said, “the cheated policyholders had the nerve to hire lawyers to fight back. Hank then led AIG into a national fight to try to limit the legal rights of those pesky policyholders, saying that the legal system in the United States was ‘clearly out of control,’” Hunter said.
Hunter charged that Greenberg funneled millions of AIG dollars into think tanks, ad campaigns and lobbying to try to erode the legal rights of AIG policyholders and all American citizens. He even called lawyers who opposed his tort deforms “terrorists.” He was also a target of Eliot Spitzer for manipulating accounts in violation of securities and insurance laws. He paid $15 million to the SEC to settle fraud charges.
“That Hank Greenberg is a very greedy man is hardly news,” Hunter said. “But, you have to give him credit for a new high in world class chutzpah for this: After decades of trying to deny the people of the United States their legal rights, Hank uses the court system to sue the people of the United States for the 'crime' of having saved his AIG stockholdings from bankruptcy and, if that were not enough, he adds to that the delicious step of asking AIG to make a small change in the first few letters of its new, ‘Thank you America’ ad campaign by joining him in the suit.”