A company run by former AIG CEO Maurice “Hank” Greenberg did not plunder billions from a retirement fund, a jury ruled, dashing the bailed-out insurer’s chances of collecting $4.3 billion in damages.
American International Group Inc. took Starr International Co, a private company run by Greenberg, to court in an effort to recover millions of shares held by Starr and get compensation for stock sold.
Tuesday’s decision is the latest blow for AIG as it struggles to repay $83 billion in loans from the federal government.
AIG had sought to establish that there was the creation of an oral trust in 1970, entrusting Starr International to use a block of AIG shares acquired in a company restructuring to fund an executive retirement scheme for generations of AIG employees. It charged Starr with breach of that trust, and with a second claim of conversion related to sales of the stock for the company’s own use.
The eight-person jury returned their verdict after about five hours of deliberation. It ruled Starr was not liable on the two claims.
However, a final decision on the breach of trust claim will be made by the court by next month.
David Boies, the lawyer for Greenberg and Starr International, said “the quickness of the (jury’s) decision reflects the simplicity of the case. The trust AIG is alleging, no one had ever heard of or seen. No document mentioned it and I think the jury recognized that.”
Boies added he was “hopeful the judge would see it the same way as the jury does.”
A spokeswoman for Greenberg said the decision was a “complete vindication of Starr International and Mr. Greenberg.”
Greenberg, 84, was forced out of AIG in 2005 after 38 years as CEO for failure to cooperate with an internal investigation into accounting practices at the insurer that once claimed global dominance.
While the final decision in the breach of trust claim will be made by the court, the conversion claim was decided by the jury, meaning that there will be no damages awarded to AIG.
Greenberg, who took the stand for several days early in the three-week trial heard in U.S. District Court in Manhattan, and sat through much of the proceedings, was not present in court for the jury’s verdict.
The final decision by Judge Jed Rakoff is expected by next month. Rakoff said in court on Tuesday he would take the jury’s determination “very seriously” in coming to his own decision.
AIG and privately held Starr International, often referred to as SICO, were closely aligned until Greenberg left AIG in 2005. He kept control of Starr and its large block of AIG shares, worth in excess of $23 billion at the time. Over time, Greenberg sold some of the stock and started investing in businesses that have at times competed against his former company.
The retirement fund was cut off within days of Greenberg’s ouster from AIG in 2005, ending a lucrative plan that had enriched hundreds of senior managers for 35 years.
AIG said in a statement after the jury announced its verdict that it was “disappointed.”
“We await the court’s final ruling. We continue to believe in the merits of our claims,” the statement said.
The ruling was another strike for AIG, already under a dark cloud because of its federal bailout, and an executive bonus controversy that angered lawmakers and citizens nationwide.
AIG’s federal rescue stemmed from losses on derivatives sold by a financial products unit. Both the bailout and details around Greenberg’s termination were precluded from the trial after the judge ruled the matters were irrelevant to the matter at hand.
The insurer had sought the $4.3 billion based on the proceeds of Starr’s AIG stock sales, hoping to use it to help repay its taxpayer debt.
The insurer had also sought to wrest back about 185 million shares held by Starr International, or roughly 9 million, if a 1-for-20 reverse stock split last week is taken into account.
AIG’s stock, which has fallen dramatically since the company did a 1-for-20 reverse stock split last week, closed down more than 15 percent at $13.75 on the New York Stock Exchange.
There are still a string of lawsuits outstanding between Greenberg, or companies he controls and AIG, stemming from the parties’ bitter 2005 break-up. Greenberg also continues to face civil charges of fraud brought by then New York-Attorney General Eliot Spitzer in 2005 related to complex reinsurance transactions at the insurer.
(Reporting by Lilla Zuill and Grant McCool; Editing Bernard Orr)
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