Former American International Group Inc. Chairman Maurice “Hank” Greenberg admitted to participating and approving two fraudulent reinsurance deals as part of a settlement over a decade-old fraud lawsuit, said New York Attorney General Eric Schneiderman.
The settlement, announced Friday, resolves a bitter court fight in which Greenberg and his lawyer David Boies squared off against three successive state attorneys general over 11 years.
“Today’s agreement settles the indisputable fact that Mr. Greenberg has denied for twelve years: that Mr. Greenberg orchestrated two transactions that fundamentally misrepresented AIG’s finances,” Schneiderman said in statement regarding the lawsuit settlement. “After over a decade of delays, deflections, and denials by [Greenberg] we are pleased that [he] has finally admitted to his role in these fraudulent transactions and will personally pay $9 million to the State of New York.”
Greenberg was fighting allegations that he used two sham reinsurance transactions to hide the insurer’s true financial condition, one involving assumption of a loss portfolio from Gen Re by which AIG recorded a total of $500 million in loss reserves. The other involved a deal with an offshore entity, Capco, where Capco reinsured underwriting losses from an auto warranty program. In a statement issued with the settlement by Greenberg, he said that the Capco transaction led to AIG reporting as investment losses “amounts that otherwise would have been reported as underwriting losses.”
Greenberg, in his statement, admitted that the Gen Re deal was done to increase AIG’s loss reserves, and the Capco deal was done to “convert underwriting losses into investment losses,” and that he “initiated, participated in and approved these two transactions.”
Greenberg’s trial began in September, more than 11 years after former New York Attorney General Eliot Spitzer filed suit.
As part of the settlement, former AIG CFO Howard Smith also admitted to playing a similar role in both transactions.
The Attorney General’s office said that both Greenberg and Smith have agreed to give up more than $9.9 million they received as performance bonuses from 2001 through 2004, the period that AIG recorded the transactions in question.
Smith is a director and the vice chairman finance of C.V. Starr, a member of Starr Companies, whose chairman and CEO is Greenberg.
Greenberg stepped down as chief executive officer of AIG in 2005 after building it into the world’s largest insurer over four decades. Shortly thereafter, company officials said one of its transactions was improper, restated its earnings by $3.4 billion, and paid $1.6 billion to settle claims by regulators.
*Carrier Management added additional material to this story from the N.Y. Attorney General’s settlement announcement.
For the full N.Y. Attorney General announcement, click here.