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Former a.I.G. Executives Reach Settlement in Accounting Fraud Case
Former a.I.G. Executives Reach Settlement in Accounting Fraud Case
Executives Reach
Settlement in Accounting Fraud
Case
By RANDALL SMITH FEB. 10, 2017
Maurice Greenberg, right, the former chief of A.I.G., with David Boies, his lawyer, leaving
New York State Supreme Court in 2016. Credit Louis Lanzano for The New York Times.
Maurice R. Greenberg, the former chief executive of American International Group, reached
an unexpected settlement ending a tumultuous, decade-long battle over civil accounting fraud
charges first brought in 2005 by New York Attorney General Eliot Spitzer.
Mr. Greenberg, 91, and his co-defendant, Howard Smith, A.I.G.’s former chief financial
officer, reached the agreement with the current New York attorney general, Eric T.
Schneiderman, who announced it on Friday.
In the settlement, the two men acknowledged that they had participated in and approved two
transactions that inaccurately portrayed A.I.G.’s financial results over four years. They
agreed to give up more than $9.9 million that they received as performance bonuses from
2001 through 2004, with Mr. Greenberg paying most of that amount. But it is a fraction of the
more than $50 million the state had sought.
The former executives also released statements acknowledging their roles in the transactions,
but not admitting to fraud.
After negotiations spanning about two months, the settlement was a quiet conclusion to a
case that began during an era when Mr. Spitzer extracted large fines after accusing Wall
Street research analysts of publishing biased research, mutual fund managers of shady trading
and insurance brokers of rigging bids and receiving kickbacks. The Enron and WorldCom
accounting frauds had shaken corporate boards.
But Mr. Greenberg was determined to fight his case, and both sides dug in for a long battle.
Neither Mr. Greenberg nor Mr. Spitzer have the same jobs they had in 2005, having receded
from those prominent roles.
The trial began in September before New York State Supreme Court Justice Charles E.
Ramos after 11 years of delays and legal maneuvering, much of it as Mr. Greenberg appealed
rulings by the judge. After his testimony and cross-examination in the trial, Mr. Greenberg
and the lawyers arguing for the state began mediation in December. The trial had been set to
resume last month, but was postponed pending the talks.
The former executives were accused of overseeing two sham reinsurance deals aimed at
duping A.I.G. investors. One deal turned auto warranty insurance losses into investment
losses; the other inflated A.I.G. reserves by $500 million. The charges led to Mr. Greenberg’s
ouster in 2005 as chief of A.I.G., which he had built into a global insurance leader.
In a statement on Friday, Mr. Schneiderman said, “Today’s agreement settles the indisputable
fact that Mr. Greenberg has denied for 12 years: that Mr. Greenberg orchestrated two
transactions that fundamentally misrepresented A.I.G.’s finances.”
In his statement, Mr. Greenberg said he “initiated, participated in and approved these two
transactions”; as a result, A.I.G.’s public filings “inaccurately portrayed the accounting, and
thus the financial condition and performance for A.I.G.’s loss reserves and underwriting
income.”
In an interview, David Boies, Mr. Greenberg’s lawyer, called the agreement a “nuisance
settlement,” noting that Mr. Greenberg had avoided two penalties sought by the state that
would have barred him from working in the securities industry or as an officer of a public
company. The settlement’s outline was framed by the mediator, Kenneth R. Feinberg.
The transactions were featured when A.I.G. settled accounting fraud charges brought by the
Securities and Exchange Commission in 2006. One, a reinsurance deal between A.I.G. and
General Reinsurance Corporation, a company owned by Berkshire Hathaway, prompted
federal criminal charges in Connecticut against several former executives of the companies;
two former Gen Re executives pleaded guilty. A 2008 jury verdict against five others was
overturned on appeal.
What began as a Spitzer-Greenberg battle was nasty from the start. Before he brought the
charges in May 2005, Mr. Spitzer had forced the ouster of Mr. Greenberg’s son Jeffrey as
chief executive of the insurance brokerage Marsh & McLennan after charging it with bid-
rigging and receiving kickbacks. And Mr. Greenberg complained that Mr. Spitzer was
treating minor infractions, like “foot faults” in tennis, as capital crimes. Mr. Spitzer shot
back, “too many foot faults, and you can lose the match.”
Early in the trial, Mr. Greenberg admitted to a sometimes active role in formulating the
transactions at issue but insisted he had intended for them to comply with accounting rules.
He said he had left most details to subordinates.
On the stand, he lunged and parried with state trial lawyer David E. Nachman, avoiding
simple answers so often that the judge chided him. “If we don’t want this trial to last a year,
you’re going to have to give direct answers,” Judge Ramos said.
In his opening statement, Mr. Boies said, “this case is devoid of any admissible evidence that
ties Mr. Greenberg to anything that was improper about these two transactions.”
A version of this article appears in print on February 11, 2017, on Page B1 of the New York edition with the
headline: Two Ex-Executives Settle A.I.G. Fraud Case. Order Reprints| Today's Paper|Subscribe