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Maurice Greenberg may be sued

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Maurice Greenberg
Maurice Greenberg

Maurice “Hank” Greenberg, who led American International Group Inc. for 38 years until his ouster amid allegations of accounting fraud, may be sued by U.S. regulators after more than four years of investigation and a government bailout of the firm he built into the world’s largest insurer, people familiar with the matter said.

Greenberg, 84, may face civil legal claims from the Securities and Exchange Commission as soon as today, the people said, declining to be identified because the regulator’s plans haven’t been announced. John Nester, an SEC spokesman in Washington, declined to comment. A spokesman for Greenberg declined to comment and one of his lawyers said Greenberg was in Europe and couldn’t immediately be reached.

The former chairman and chief executive has been locked in legal battles since AIG’s board pushed him out in 2005 during a probe by then-New York Attorney General Eliot Spitzer into reinsurance, the business of selling insurance to insurers. The company later restated $3.4 billion in earnings and in 2006 paid more than $1.6 billion to settle state and SEC claims it misled investors. Greenberg, a former U.S. Army captain and World War II combatant, has called much of the restatement unnecessary and pledged to contest claims that he engaged in misconduct.

Two months after his departure from New York-based AIG, Greenberg was sued by Spitzer and accused of ordering improper transactions to hide losses and inflate reserves. Spitzer dropped portions of the case in 2006. New York Attorney General Andrew Cuomo took over the suit when he assumed office in 2007.

General Re

At the core of the SEC’s 2006 claim against AIG were reinsurance transactions with General Re, a unit of Warren Buffett’s Berkshire Hathaway Inc., which allegedly inflated AIG’s reported reserves for claims by $500 million in 2000 and 2001.

According to guilty pleas in a related criminal case against former General Re executives, Greenberg initiated the deal with former General Re CEO Ronald Ferguson because he wanted to appease analysts who were concerned about AIG’s reserve levels. Prosecutors called Greenberg an unindicted co- conspirator. He wasn’t charged with a crime and has denied knowledge of any improper transaction.

Greenberg has been embroiled in litigation with AIG since he left the company. Last month, a federal jury rejected AIG’s claims that a private firm he ran looted $4.3 billion of stock owned by the insurer.

AIG argued that shares held by Greenberg’s Starr International Co. were supposed to be used for a deferred- compensation plan to reward AIG employees. Greenberg’s attorneys said no such agreement existed.

Omaha Beach

The son of a candy-store owner on Manhattan’s Lower East Side, Greenberg stormed Omaha Beach when he was 19 during the 1944 D-Day invasion of France and earned a Bronze Star in Korea, eventually rising to the rank of captain.

He joined AIG in 1960, and by 1962, AIG founder Cornelius Starr had chosen him to take charge of one of the firm’s acquisitions, American Home Assurance Co. Five years later, he was named CEO. Greenberg built the company’s property and casualty business with the acquisitions of National Union Fire Insurance Co., United Guaranty Corp. and HSB Group Inc., and expanded into non-insurance businesses such as airplane leasing with the purchase of International Lease Finance Corp. in 1990.

He had boosted the insurer’s assets more than 1,000-fold while completing $50 billion of acquisitions in 130 countries by the time he left AIG in 2005. AIG’s next three CEOs would leave smaller marks.

U.S. Bailout

Martin Sullivan held the top post for three years and was forced out after saying losses tied to home loans would be “manageable.” Robert Willumstad was CEO for about three months before Edward Liddy was appointed, following the company’s near- collapse during a global credit contraction that spurred the U.S. government to bail out the firm in September with an $85 billion credit line.

The insurer teetered on the brink because it faced billions of dollars in payments to counterparties on credit-default swap transactions, or contracts used to protect against a default on corporate debt. The government’s rescue has since ballooned to $182.5 billion.

Responding to AIG’s failure has been a central focus of efforts by the President Barack Obama’s administration and Congress to adopt the most sweeping reforms of U.S. financial regulation since the Great Depression.

Treasury Secretary Timothy Geithner told lawmakers in March that AIG was an insurance company “attached to a hedge fund that was allowed to build up without any adult supervision.” Federal Reserve Chairman Ben S. Bernanke said that no government rescue of a financial company made him “more angry” than AIG because the company “exploited a huge gap in the regulatory system.”

Greenberg has blamed his successors, telling members of the House Oversight and Government Reform Committee in April that AIG’s Financial Products unit hedged most of its transactions during his tenure and that the company accelerated sales of swaps after he stepped down as CEO.

Source: Bloomberg

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