Former American International Group Inc. Chief Executive Maurice “Hank” Greenberg has asked a judge to dismiss a civil fraud lawsuit brought by New York’s attorney general, who is seeking to hold him personally liable for a sham reinsurance transaction.
Greenberg and former AIG Chief Financial Officer Howard Smith were sued in 2005 by Eliot Spitzer, then New York’s attorney general, over a 2000 reinsurance transaction with the General Re Corp. unit of Warren Buffett’s Berkshire Hathaway Inc.
That transaction allegedly boosted AIG’s loss reserves by $500 million without transferring risk. Spitzer’s successor Andrew Cuomo has taken over the lawsuit, which seeks to hold the defendants liable under a powerful state securities law, the Martin Act.
According to papers filed by Greenberg’s lawyers in New York State Supreme Court in Manhattan, Greenberg answered “no” when asked at a March deposition whether he agreed with General Re to participate in a fraudulent reinsurance transaction, or authorized anyone at AIG to do so.
Absent independent evidence of wrongdoing, Greenberg’s lawyers said the state failed to show their client’s “knowing agreement to participate in a conspiracy to engage in fraud.”
But Cuomo countered that the defendants’ testimony “confirmed the abundant independent evidence” about their responsibility. He said that Greenberg initiated and negotiated the General Re transaction, while Smith decided to book reserves despite knowing he had no basis to do so.
“At the very least, the reckless indifference” they showed “makes them fully liable” under the Martin Act, Cuomo argued.
Greenberg has long maintained his innocence, and has said he agreed to testify after a five-year statute of limitations on possible criminal charges ran out in February.
The 84-year-old Greenberg is trying to rehabilitate his reputation and settle lawsuits over the transaction and his ouster from AIG in March 2005.
Last August, Greenberg agreed to pay $15 million to settle U.S. Securities and Exchange Commission charges that he altered AIG’s records to boost results between 2000 and 2005.
Then in November, he resolved years of litigation with AIG, which agreed to reimburse him and others for as much as $150 million of legal expenses.
Investigators have questioned Berkshire Chief Executive Warren Buffett about the General Re transaction, but never accused him of wrongdoing.
New York State Supreme Court Justice Charles Ramos in Manhattan has scheduled a April 20 conference on the matter.
Federal prosecutors have obtained five convictions and two guilty pleas of former General Re and AIG officials over the reinsurance transaction, including the conviction of onetime General Re Chief Executive Ronald Ferguson.
AIG agreed in 2006 to pay $1.64 billion to settle state and federal probes into its business practices.
General Re agreed in January to pay $92.2 million to end a U.S. Securities and Exchange Commission probe over alleged sham transactions with AIG and Prudential Financial Inc.
The case is New York v. Greenberg et al, New York State Supreme Court, New York County, No. 401720/2005.
(Reporting by Jonathan Stempel; Editing by Richard Chang)
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