Almost a dozen years ago, then-New York Attorney General Eliot Spitzer filed a fraud lawsuit against former American Insurance Group Inc. CEO Maurice “Hank” Greenberg over two reinsurance transactions that purportedly gave an improper boost to the company’s financial statements.
On Friday, New York’s current attorney general, Eric Schneiderman, announced the case was finally settled, with Greenberg admitting he approved two fraudulent transactions and agreeing to pay $9 million. The settlement also resolved civil claims against Howard Smith, AIG’s former chief financial officer, related to the two transactions, Schneiderman said.
But Monday afternoon, Greenberg and Smith sat beside each other at a news conference in midtown Manhattan and made it clear that their animus toward New York state’s top lawyer was hardly settled, even if the lawsuit was.
Greenberg, 91, said he never admitted to fraud or any wrongdoing in settling the lawsuit, despite Schneiderman’s claims to the contrary. He said the lawsuit was filed as payback for his criticisms of Spitzer and that Friday’s news release — which came as a surprise to Greenberg’s camp — was an attempt by Schneiderman to put a positive spin on a case in which the attorney general failed to obtain the penalty and securities ban he sought from the two former executives.
“He pursued the case so aggressively. He’s embarrassed the way it ended,” Greenberg said.
Eric Soufer, a spokesman for Schneiderman, said the statement that Greenberg agreed to distribute — in which he admitted to initiating, participating in and approving two transactions that led to inaccurate portrayals of the company’s health — speaks for itself.
“No number of press conferences or TV interviews by Mr. Greenberg or Mr. Boies is going to change that,” Soufer said, referring to Greenberg’s attorney, David Boies. Spitzer didn’t immediately respond to requests for comment.
The settlement resolves claims that stemmed 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. The attorney general argued the transactions were fraudulent and intended to make AIG’s financial statements look better than they were.
But rather than admitting fraud, Greenberg has said the inaccurate accounting statements were “honest mistakes” that he didn’t know were wrong. The penalty is a small fraction of the $6 billion in damages the attorney general originally sought and less than the costs of litigating the suit, Boies said. In an interview on Bloomberg Television Monday, Greenberg estimated he had spent about $200 million fighting the case over the years.
Greenberg and Smith had argued the attorney general couldn’t prove that either transaction was improperly accounted for, that the defendants knew of any alleged impropriety or that the two deals had a significant impact on AIG’s financial results.
Anthony Sabino, a law professor at St. John’s University’s Peter J. Tobin College of Business, questioned why the attorney general continued to pursue the case against the executives long after AIG had settled, restated its earnings and was bailed out by the government, during the financial crisis. He suggested it was the work of a overzealous attorney general “simply trying to make political points.”
“Why did the state of New York spend over a decade pursuing Greenberg when the injuries had already been fully addressed?” Sabino said. “Surely the New York attorney general had better things to do. Again, the states have a right to enforce the law in their own domains. But when the problem is solved or nearly so, why fight for years, especially here when the final ‘gain,’ if you can call it that, is trifling.”
Greenberg stepped down from AIG in March 2005, two months before Spitzer sued. New York-based AIG eventually restated its earnings lower by $3.4 billion and agreed to pay $1.64 billion to settle allegations by Spitzer and other regulators, without admitting or denying wrongdoing.
Four former Gen Re executives and one from AIG were convicted of accounting fraud in 2008 but won reversals in 2011. Federal prosecutors agreed to drop the charges the following year under deferred-prosecution agreements after the former executives admitted “aspects” of the Gen Re deal were fraudulent.
Under the settlement, which came after more than two months of mediation, Greenberg agreed to return $9 million in bonuses and admitted to initiating, participating in and approving the transactions. Smith agreed to return $900,000 in bonuses and admitted to participating in and approving the deals.
New York had sought to bar Greenberg and Smith from participating in the securities business, from serving as officers or directors of public companies and to force them to give up more than $50 million in bonuses. While the settlement does include repayment of bonuses, it doesn’t include the work prohibition.
The agreement resolves a legal battle in which Greenberg and Boies squared off against three successive state attorneys general who accused him of fraud. Greenberg, a World War II veteran, refused to settle, seeing the trial as an opportunity to redeem himself after he was pressured to resign from the company that he built, over almost 40 years, into the world’s biggest insurer.
“From the beginning this was not about the facts,” Smith said. “It was about getting press releases for political gain.”