Greenberg Admits To Initiating, Participating, And Approving Two Fraudulent Transactions Committed By AIG While CEO
Greenberg And Smith Agree To Return Multi-Million Dollar Bonuses They Received While The Frauds Were On AIG’s Books
When Combined With Previous SEC Settlement, Greenberg Will Have Disgorged Nearly Every Dollar In Bonuses He Received During The Period Of The Fraud
The Office of Attorney General Eric T. Schneiderman announced today that it has reached a settlement of the Office’s securities fraud suit under the Martin Act against Maurice R. (“Hank”) Greenberg, the former CEO of American International Group, Inc. (“AIG”), and Howard I. Smith, AIG’s former Chief Financial Officer. The lawsuit, People v. Maurice R. Greenberg and Howard I. Smith, Index No. 401720/05 (New York County Supreme Court), was brought by Attorney General Eliot Spitzer in 2005, following the admission by AIG that the company had engaged in certain improper reinsurance transactions while Mr. Greenberg was the company’s CEO and Mr. Smith the CFO, including two sham deals--known as the GenRe and Capco transactions--that materially misrepresented AIG’s loss reserves and misstated its underwriting results, respectively, during the period 2000 to 2004.
Attorney General Schneiderman said, “Today's agreement settles the indisputable fact that Mr. Greenberg has denied for twelve years: that Mr. Greenberg orchestrated two transactions that fundamentally misrepresented AIG's finances. After over a decade of delays, deflections, and denials by Mr. Greenberg, we are pleased that Mr. Greenberg has finally admitted to his role in these fraudulent transactions and will personally pay $9 million to the State of New York.”
AIG was also an original defendant in the Attorney General’s suit. In 2006, AIG reached a prompt settlement with the Attorney General’s Office, and paid $1.6 billion to settle the matter. Mr. Greenberg and Mr. Smith, however, refused to settle or to acknowledge any personal responsibility for the transactions.
For over twelve years, Messrs. Greenberg and Smith refused to admit that the GenRe and Capco transactions were improper, or that they were responsible for the transactions. Attorney General Schneiderman took the case against Greenberg and Smith to trial in September 2016, and the defendants were compelled to testify about these matters in open court. Now, Mr. Greenberg acknowledges that he personally initiated, participated in and approved these transactions. Mr. Smith admits to having played a similar role. In addition, they have agreed to give up over $ 9.9 million that they received as performance bonuses from 2001 through 2004, the period when these sham transactions were reflected on AIG’s books. Combined with Mr. Greenberg’s previous settlement with SEC, Mr. Greenberg’s $9 million payment under today’s agreement will require him to relinquish virtually every dollar paid to him in bonuses during that time.
From 2005 until 2016, Mr. Greenberg and Mr. Smith delayed a trial of the State’s claims against them by engaging in extensive motion practice and eight pre-trial appeals. They maintained for over a decade that the Attorney General’s office lacked the legal authority to pursue the claims against them, and that there was insufficient evidence of their involvement in the reinsurance transactions to even warrant a trial. Over time, their arguments were substantially rejected by the New York Supreme Court, the New York Supreme Court Appellate Division, First Department and the New York Court of Appeals. In the process, the courts have confirmed that New York’s Martin Act is not preempted by federal securities laws, and that the Attorney General has the power to obtain disgorgement by corporate executives of money they have received as a result of frauds committed by their companies, when the executives participated in or had knowledge of the frauds.
Beginning in September 2016, after the Court of Appeals rejected the second of defendants’ appeals to that Court, the Attorney General’s Office began the trial of its case before Justice Charles E. Ramos. After Messrs. Greenberg and Smith testified, the trial was recessed to allow the parties to explore a final, non-appealable resolution of the case with the assistance of mediators Kenneth Feinberg and Camille Biros. Through that process, the parties reached a final settlement. As part of the settlement, Mr. Greenberg acknowledges that he personally initiated, participated in and approved these transactions. Mr. Smith admits to having played a similar role. They also have acknowledged that the effect of the transactions was to inaccurately portray AIG’s true financial results, and that AIG correctly restated the GenRe transaction upon finding that it did not transfer risk – a point Mr. Greenberg has vigorously disputed for years. In addition, they have agreed to give up $9.9 million that they received as performance bonuses from 2001 through 2004, the period when these sham transactions were reflected on AIG’s books. When combined with Mr. Greenberg’s previous settlement with SEC, Mr. Greenberg’s $9 million payment under today’s agreement will disgorge virtually every dollar paid to him in bonuses during that time.