New York Attorney General Eliot Spitzer this week accused embattled insurance executive Maurice R. "Hank'' Greenberg of participating in a series of financial transactions 35 years ago that cost the charitable foundation of his mentor $6 billion.
Spitzer's allegations were contained in a letter delivered Wednesday to the president of the Starr Foundation. They represent the latest escalation of his battle with Greenberg, who resigned in March as the chairman and chief executive of American International Group Inc. amid widening federal and state probes of accounting irregularities at the world's largest property and casualty insurance company.
The Starr Foundation's 2003 tax return filed with the Internal Revenue Service listed assets of $3.6 billion, made up mostly of shares in AIG, and showed that it made more than $188 million in charitable donations that year. The bulk of those were grants to colleges and tuition payments made for students.
The attorney general urged the foundation to take civil action against Greenberg and suggested he would do so if they don't act by the end of January to recover the assets and reconstitute its board "to guarantee it the independence needed to advance its charitable mission into the future.''
Spitzer alleged in the letter that records obtained by court order from AIG's Bermuda offices show that three transactions in 1969 and 1970 were rife with conflicts of interest that harmed the interests of the charitable foundation.
"Mr. Greenberg directed a series of transactions that deprived the Starr Foundation of billions of dollars in assets,'' said Spitzer spokesman Darren Dopp. "Whether that improper conduct occurred yesterday or years ago doesn't matter. There is no sunset on fiduciary obligations.''
Greenberg's spokesman didn't return a request for comment left after business hours and his attorney on the matter, Robert Morvillo of Manhattan, said he had just received Spitzer's letter and would have no comment Wednesday. The foundation was listed under a non-working number of AIG and the foundation's attorney wasn't listed in Manhattan.
Spitzer said Greenberg was an executor of the estate of his mentor, Cornelius Vander Starr, who created a worldwide network of insurance companies including AIG in the early 1900s. Starr died Dec. 20, 1968 and Greenberg was one of the executors of the estate, according to Spitzer's letter.
In 1969 and 1970, the estate sold Starr's shares in American International Underwriters Far East Inc., C.V. Starr & Co. Inc. and Starr International Co. The shares were purchased by C.V. Starr & Co. Inc. and Starr International Co., which were owned and controlled by Greenberg and other close associates of Starr, according to the letter.
Spitzer claimed the executors of the estate sold the stock at low prices, then C.V. Starr & Co. Inc. and Starr International Co. sold them at much higher prices to AIG, enriching the Starr companies and the executors at the expense of the foundation, Spitzer said.
Greenberg remains in control of the Starr companies and is chairman of the board of the foundation, Spitzer said. The value of the shares in those years-old transactions have the equivalent value today of more than $6 billion and Spitzer suggests those funds rightfully belong to the foundation.
In recent Securities and Exchange Commission filings, Greenberg describes Star International as a holding company for interests in commercial real estate, a private golf club and manager of an investment portfolio.
AIG's most recent proxy statement listed Star International as the owner of 310.9 million, or almost 12 percent, of AIG's shares. The value of those shares was $20.6 billion based on Wednesday's closing stock price.
Control of Starr International, which also previously operated a deferred compensation profit participation plan for the benefit of AIG executives, is currently the subject of a legal battle between AIG's board of directors and Greenberg.
Spitzer said the relevant documents outlining the 1969 and 1970 transactions were removed from AIG's Bermuda office in late March by Greenberg's layers. Spitzer later received the records by court order.
Spitzer, who is running for New York governor, explained his interest in the years-old transactions by saying state law makes the Attorney General's Office responsible for ensuring that the beneficiaries of charitable foundations derive the full and fair value of foundation assets.
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