|
AIG loses big round in lawsuit against Greenberg
2009-07-07
NEW YORK - American International Group Inc. lost a big round Tuesday in its court battle against former CEO Maurice "Hank" Greenberg. In an advisory decision, a federal jury in Manhattan found that a private investment firm controlled by Greenberg did not have to reimburse AIG for $4.3 billion in shares taken from a company retirement bonus fund in 2005, shortly after Greenberg was ousted as the insurer's CEO. U.S. District Judge Jed S. Rakoff said he would issue a ruling in the case by the end of August. "I give considerable weight to an advisory verdict, but in the end, it is something that the court has to determine for itself and I will make my own findings of fact and consultations of law," Rakoff said. The jury deliberated for about half a day before issuing its decision. The New York-based insurance giant had accused Greenberg, through a company called Starr International Co. that he controls, of plundering an AIG retirement program composed of $4.3 billion in stock. The questions raised during the civil trial boiled downed to who controlled the fund, and what its purpose was. AIG has received $182.5 billion in federal aid since last fall, and the government has taken an 80 percent stake in the company. The company said it would use any proceeds from the trial to repay some of its loans from the government. The case was unrelated to the company's recent financial crisis. The insurer's attorney, Theodore Wells, said only that he was "disappointed in the verdict." He had asked the jury to recommend that AIG receive $4.276 billion and 185 million AIG shares from Starr International. Greenberg, 84, who testified during the first week of the trial that began June 15, was not present for the jury's decision. David Boies, Starr International's attorney, said: "I think the quickness of the decision reflects the simplicity of the case. I would be hopeful that the judge would see it the same way the jury does." Liz Bowyer, spokeswoman for Starr International, said the company was "gratified by the jury's quick and complete vindication of Starr International and Mr. Greenberg." AIG charged that Greenberg had improperly taken the stock and then sold it out of anger over his ouster from the company in 2005 amid investigations of accounting irregularities. Greenberg's lawyers contended that he had the right to sell the shares because they were owned by Starr International. Greenberg built AIG over his 35-year career from a small company into the world's largest insurer. Starr International remained AIG's largest shareholder until the government bailed out AIG last September. AIG was on the verge of collapse after having lost billions of dollars because of risky investments, including mortgage-backed securities, made during the housing boom. Its insurance operations have been sound. Now, a number of its assets are up for sale as the company tries to gather cash to pay back the government. Greenberg has criticized AIG since his 2005 ouster. During the trial, he continued his attacks on the managers who succeeded him, saying, "Things do change when you have a management that does not adhere to principles that would be good for AIG stock." The stock, which traded in the $70 range two years ago, fell to below $1 in the past year. It closed at $13.61 Tuesday, but that price was boosted by a reverse stock split last week. The fund at the center of the lawsuit was created during a reorganization of AIG in 1970 with $110 million worth of stock. Its value grew to $4.3 billion over nearly four decades. Greenberg described the fund in several letters and speeches over the years as a retirement bonus fund for current and future employees -- a "kind of golden handcuffs." In one speech, Greenberg called the fund's creation "the most unselfish act in corporate history." According to Greenberg and Starr International's lawyers, AIG never told auditors, shareholders, the Securities and Exchange Commission or insurance regulators that AIG employees were its primary beneficiaries. Instead, they claimed, Starr International was the beneficial owner of the stock. It's such an unusual fund that even Greenberg acknowledged in a speech many years ago that it would not be able to be created under current U.S. tax law. Starr International is a Bermuda-based holding company.
| 
