Former American International Group Inc. Chairman Maurice Greenberg has sued AIG in connection with allegations that AIG engaged in excessive speculation in derivatives after he left the company.
The speculation reduced the value of the AIG stock in Greenberg’s deferred compensation plans, Greenberg alleges in the suit, which was filed in the U.S. District Court in New York.
Greenberg said today on CNBC that his deferred comp losses totaled $2 billion.
“I was hurt very badly,” Greenberg said.
The AIG stock was awarded to Greenberg by Starr International Company, a company that formerly was an exclusive managing general agent for AIG. The firm owned stock as a result of the creation of AIG, but it split off soon after Greenberg left AIG in 2005 as a result of a settlement between AIG and another Greenberg firm, C. V. Starr.
Greenberg now uses C.V. Starr to broker commercial insurance for AIG competitors.
Greenberg says in the lawsuit that he wants to recover the difference between the price at which he bought the AIG shares and the “price of the true and fair value of these shares had defendants not engaged in material misrepresentations and omissions.”
He charges in the suit that the rapid growth in AIG’s involvement with risky credit default swaps after he left “artificially inflated the price of AIG shares” and also caused Greenberg to pay excessive income tax on the AIG shares he acquired.
“We believe the lawsuit is without merit and we will vigorously defend it,” AIG spokesman Peter Tulupman says.
Greenberg alleges in his suit that, between the time he left AIG in March 2005 and the summer of 2008, AIG was a leading issuer of credit default swaps, and that most of the increase in purchases in CDS after he left were of CDS that insured purchasers against loss of investments in collateralized debt obligations backed by subprime mortgages.
According to the suit, by Dec. 31, 2007, CDS issued by AIG hedged the risk of default on at least $527 billion in debt, including debt securities backed by subprime mortgages.
“AIG made repeated statements touting its sophisticated and conservative strategies in limiting any foreseeable losses arising from its CDS portfolio,” Greenberg alleges in the suit.
He says Joseph Cassano, former head of AIG’s London-based AIG Financial Products division, made the following comment about AIG’s CDS portfolio: “It is hard for us with, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of these transactions.”
Cassano made that comment in August 2007, during AIG’s second quarter earnings conference call, Greenberg alleges in the suit.