Greenberg’s ‘day of reckoning’ over AIG fraud claims arrives

(Bloomberg) – Eliot Spitzer hasn’t been attorney general for more than a decade, but his presence loomed large in a Manhattan courtroom as a trial began in a fraud suit he filed against ex-American International Group Inc. head Maurice “Hank” Greenberg 11 years ago.

Assistant Attorney General David Ellenhorn began his opening statement Tuesday by noting it took less time to fight World War II. But the “day of reckoning” for Greenberg and AIG’s former Chief Financial Officer Howard Smith has arrived, Ellenhorn said.

Spitzer sued AIG, Greenberg and Smith in May 2005, accusing them of orchestrating two sham transactions in order to hide the insurer’s true financial condition.

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 — now-governor Andrew Cuomo and current Attorney General Eric Schneiderman — kept pushing for a trial.

Appeal Denied

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.”