AIG vs. Greenberg Trial: AIG Never Involved in Management of Starr

By | June 22, 2009

Former American International Group Inc. chief Maurice “Hank” Greenberg told a federal jury on Friday that his former company at no time played a role in the management of Starr International, a private company controlled by Greenberg that owns a large block of AIG stock.

At issue is who is the rightful owner of the stock held by Starr, which funded an executive compensation plan for AIG’s top managers for 35 years. Starr ended the plan in 2005, the same year Greenberg was ousted as AIG’s chief executive.

AIG sued Starr to reclaim $4.3 billion in proceeds of stock sales since 2005, and wrest back another 185 million shares, with the intention of bringing funding for the retirement plan in-house.

A study by AIG auditor PricewaterhouseCoopers that was shown to the court said the cost to Starr for the AIG retirement plan averaged $78 million per year. Starr had set aside $1.26 billion for plan participants through 2003, according to Starr’s financial statements.

Starr, which had earlier sued AIG for the return of artwork owned by Starr, maintains that a charitable trust was always the intended beneficiary of Starr. The artwork dispute has been settled.

In response to questions from his lawyer David Boies, Greenberg said Starr International amended a trust agreement to benefit a charity several times through the years. Greenberg testified that AIG was never involved in changes to the trust or a beneficiary of the trust.

“AIG was not a party to any of this,” said Greenberg.

The case is being heard in the courtroom of U.S. District Judge Jed Rakoff.

Greenberg, 84, who built AIG into the world’s largest insurer, left AIG amid allegations of improper accounting at the insurer. He remained chairman of Starr, which held AIG stock worth more than $23 billion at one point.

AIG is trying to establish that there was an oral contract for Starr’s stock to fund the executive retirement plan, based on numerous speeches and interviews by Greenberg where he spoke of using the AIG stock that Starr held for “future generations” of AIG employees.

The case is complicated by the fact that for nearly four decades, including many of the years being discussed at trial, there was little distinction between Starr and American International Group Inc.

Greenberg was chairman of both entities, and founding shareholders and directors of Starr International were also senior AIG executives. The two also shared premises in different parts of the world. Until the U.S. government bailed out AIG last September, Starr was AIG’s largest shareholder.

AIG says, subject to approval, it would use any trial winnings to repay taxpayer debt.

Judge Rakoff ruled on Monday that investigations surrounding Greenberg’s ouster, the U.S. government’s bailout and controversial bonuses to AIG executives could not be raised in the trial because they were irrelevant to the case.

Greenberg, who has been testifying since Tuesday, is expected to take the stand again on Monday.

The case is: American International Group v Starr International Company Inc 05-6283 in U.S. District Court for the Southern District of New York (Manhattan).

(Reporting by Lilla Zuill; Editing by Steve Orlofsky)

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