Greenberg's Trial Begins -- 11 Years Later -- WSJ
14 September 2016 - 5:02PM
Dow Jones News
By Leslie Scism
Maurice R. "Hank" Greenberg, the prominent insurance executive
who transformed American International Group Inc. into a global
powerhouse, is finally on trial.
Eleven years ago, Eliot Spitzer, New York Attorney General at
the time, filed a financial-fraud civil-court lawsuit against Mr.
Greenberg. What followed was a decade of delays, new attorneys
general and a narrowing of the accusations. Starting Tuesday, the
government began trying to prove Mr. Greenberg approved two
financial maneuvers between 2000 and 2003 aimed at duping
shareholders into believing AIG's core insurance operating results
were better than they were.
Mr. Greenberg arrived at New York Supreme Court in Manhattan
moments before the opening arguments got under way and took a seat
at the large table his lawyers share with the state at the other
end. For much of the time, he leaned back without moving, hands
clasped in front. During a break, he scrolled his cellphone for
messages and made a phone call.
After leaving the courtroom, he said in a brief interview: "I've
been thinking about this for 11 years. It went well."
In the opening statements in the civil lawsuit, state senior
trial counsel David Ellenhorn said the former AIG chief executive
had "designed, created, negotiated and implemented every aspect" of
the transactions to bolster the company's stock price.
Mr. Ellenhorn said a ban on Mr. Greenberg serving as a
public-company officer or director, as the state is seeking, would
have "a deterrent effect" on CEOs of other companies and prove that
"you cannot manipulate the books of your company" and get away with
it.
David Boies, Mr. Greenberg's longtime lawyer, responded in his
opening statement that the state "doesn't have a single witness to
testify," nor does it have documents, to link his client to the
purported wrongdoing.
If found liable by Judge Charles Ramos in the nonjury trial, the
91-year-old could be ordered to forfeit past bonuses totaling
millions of dollars, plus interest, and be barred from the
securities industry as well as from serving as a public-company
officer or director. Also named as a defendant is former AIG Chief
Financial Officer Howard Smith, 71 years old, who faces the same
potential sanction.
The two claims that will be dissected in coming days are what
remains of a wide-ranging civil suit filed by Mr. Spitzer in 2005,
in one of his highest-profile moves just before his successful run
for New York governor in 2006.
The original suit alleged nine different maneuvers by the former
AIG chieftain to elevate the share price, and the state early on
sought $6 billion in damages. Mr. Spitzer's 2005 probe led to Mr.
Greenberg's resignation. In 2008, Mr. Spitzer resigned as governor
in a sex scandal involving prostitutes, less than two years after
taking office.
The state narrowed the case against Mr. Greenberg over the years
and gave up an earlier demand for $6 billion in damages after a
federal judge in 2013 approved a settlement of class-action
litigation filed by AIG shareholders. That $115 million settlement
mooted the multibillion-dollar damage claims in the state's
lawsuit.
Beginning Wednesday, the state's lawyers are expected to call
the first of about 10 witnesses, most of them people who worked at
AIG for Mr. Greenberg when the alleged wrongdoing occurred,
according to trial-preparation materials for the case reviewed by
The Wall Street Journal.
The defense's list of potential witnesses is far longer than the
state's, its trial-preparation documents show, with more than
two-dozen fact witnesses -- mostly AIG veterans -- and 10 experts
to possibly take the stand.
The state maintains Mr. Greenberg, in one of the alleged
accounting frauds, initiated a transaction with Berkshire Hathaway
Inc.'s General Re unit to help AIG improperly boost its claims
reserves in 2000 and 2001 by about $500 million, misleading
investors about the amount of losses that AIG could absorb.
Berkshire isn't named as a defendant in the lawsuit.
The other transaction at issue allegedly was designed to
mischaracterize underwriting losses in an auto-warranty business as
capital losses. Insurance investors closely watch underwriting
results as core to a company's operations. The state alleges Mr.
Greenberg enmeshed himself "to an extraordinary degree" in aspects
of how the auto-warranty losses could be mitigated.
The warranty program was part of U.S. operations overseen by his
son Evan Greenberg, when he worked at AIG. Evan Greenberg, who left
AIG in 2000 and now is chairman and chief executive of Chubb Ltd.,
has never been accused by the Attorney General's office of
wrongdoing in the auto-warranty matter.
(END) Dow Jones Newswires
September 14, 2016 02:47 ET (06:47 GMT)
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