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

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(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.”  

Greenberg’s lawyer will give an opening statement after Ellenhorn concludes.

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. The attorney general’s office can’t prove that either transaction was improperly accounted for or that Greenberg or Smith knew of any impropriety, Greenberg’s lawyers said.

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

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 $55 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 charges 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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