Former A.I.G.

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.”

Saule Omarova, who specializes in the regulation of financial institutions as a professor at

Cornell Law School, said the case was about the legacies of Mr. Greenberg as A.I.G.’s
longtime leader and Mr. Spitzer as a onetime prominent Wall Street regulator.
Stepping back, she said, the case is a prominent example of regulators’ efforts to untangle the
blame for “risk-creating activities at large financial conglomerates” that later loomed large in
the financial crisis of 2008.
Three years after the charges led to Mr. Greenberg’s ouster, A.I.G. nearly collapsed and
needed an $185 billion federal rescue. Mr. Spitzer resigned as New York governor in 2008 in
a prostitution scandal.
The state and the two defendants had reached an agreement to settle the case just before
A.I.G.’s near-collapse. However, a steep drop in A.I.G.’s stock price at that time reduced the
value of a planned charitable donation of A.I.G. shares that would have been part of the
settlement, and the agreement was called off.
Before the trial, Judge Ramos ruled in favor of the state on one of the charges, but that was
overturned on appeal, and the defense unsuccessfully sought to remove him from the case.
In the Gen Re deal struck in 2000, the company was supposedly paying $10 million to get
reinsurance from A.I.G., according to testimony by Christian M. Milton, a former A.I.G.
executive. But A.I.G. arranged to repay the $10 million to Gen Re with a $5 million deal fee,
he testified.
The state charged that the “secret” fee repayment was a sign the reinsurance was bogus,
intended mainly to allow A.I.G. to increase reserves by $500 million. But Mr. Greenberg,
who initiated the deal by phoning the Gen Re chief executive, testified that he was not aware
of the repayment plan.
In a 2008 deposition admitted into evidence early in the trial, Alice Schroeder, a former
Morgan Stanley insurance analyst, said that if she had known about the Gen Re transaction
and its impact in raising A.I.G.’s then-faltering reserve levels, she “almost certainly” would
not have upgraded the stock in early 2001. She also described Mr. Greenberg as “a very
hands-on manager.”
One cloud over the state’s case was whether a deposition of Richard Napier, a former Gen Re
executive, could come into evidence. Mr. Napier was an important prosecution witness in the
Connecticut trial who in 2005 pleaded guilty to conspiring to commit securities fraud in the
A.I.G. deal.
While the defense objected to parts of Mr. Napier’s deposition as inadmissible “hearsay,”
New York State lawyers argued that a “co-conspirator exception” to hearsay rules should
apply. Judge Ramos received briefs on the issue but had not ruled before the mediation effort
began.

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