It is the civil fraud trial of Maurice “Hank” Greenberg that has been coming for 11 years, winding its way through seven pretrial appeals and narrowing in scope as government lawyers abandoned parts of their case against the prominent insurance executive.
Former New York Attorney General Eliot Spitzer brought the case in 2005, and it began as a $6 billion lawsuit alleging nine different wrongful financial acts. Shortly before ascending to the governor’s mansion, Spitzer sued both Greenberg, who had just stepped down as American International Group Inc.’s CEO, and Howard Smith, AIG’s former chief financial officer.
Today, the lawsuit focuses on just two alleged sham transactions and seeks disgorgement of $52 million in total from Greenberg and Smith.
But that’s not to say the bench trial before Manhattan Supreme Court Justice Charles Ramos — which may stretch into 2017 and which features David Boies of Boies, Schiller & Flexner as Greenberg’s lawyer — won’t be a fierce fight.
“It only took eight years for the second World War to be fought and resolved. This [case] is a little longer,” David Ellenhorn, a senior trial lawyer for the state, declared in his opening statement, according to a trial transcript. “But here we are finally, the day of reckoning for Mr. Greenberg and Mr. Smith; the day on which the government can put forward the evidence of two frauds.”
Boies, for his part, countered that “Mr. Ellenhorn’s opening statement was filled with colorful accusations, assumptions and speculations but devoid of a single piece of admissible evidence that ties Mr. Greenberg to any improper aspect of either of the two transactions that are still at issue.”
And yet the real fireworks in the trial may start Tuesday. That is when Greenberg, the former billionaire executive who grew AIG into the world’s largest insurance company, will take the stand to face off with lawyers from the office of New York’s current attorney general, Eric Schneiderman.
Greenberg, now 91, is expected to match wits and guile against government lawyers for a day or longer. And Boies has told news outlets in recent weeks that Greenberg wanted to go to trial, where he intends to clear his name and work to preserve his legacy as one of most prominent business titans of the last century who has also given immensely to charities.
It could make for dramatic theater in a case focused on nuanced and difficult-to-follow transactions involving reinsurance, losses and accounting rules.
In one of those alleged transactions, Schneiderman’s office claims that Greenberg and Smith helped orchestrate a fraudulent reinsurance deal between AIG and General Reinsurance Corp. The transaction allegedly pumped up AIG’s reserves by $500 million in 2000 and 2001, deceiving Wall Street analysts and investors about the level of losses AIG could handle.
In the other transaction, Greenberg stands accused of playing a hands-on role in using an offshore reinsurer, which was controlled by AIG, to change underwriting losses linked to a company auto-warranty business into capital losses. Those capital losses, the government says, were not viewed by investors to be as harmful or important as those coming from underwriting.
Vincent Sama, a partner at Kaye Scholer, is leading Smith’s defense in the case.