A New York judge held former American International Group Inc. Chief Executive Maurice “Hank” Greenberg liable for damages on a reinsurance transaction that state Attorney General Andrew Cuomo said helped the insurer hide losses.
New York State Supreme Court Justice Charles Ramos also found former Chief Financial Officer Howard Smith liable on the transaction, which involved an entity called Capco Reinsurance Co. It was allegedly used to hide more than $200 million of losses from an auto warranty insurance program.
The judge, however, denied Cuomo’s request for a judgment against both defendants over a transaction involving General Re Corp to boost AIG loss reserves by $500 million without transferring risk. General Re is a unit of Warren Buffett’s Berkshire Hathaway Inc.
Thursday’s ruling is a setback for Greenberg, 85, who has since 2005 been defending the lawsuit originally filed by Eliot Spitzer, Cuomo’s predecessor as attorney general.
Cuomo accused Greenberg and Smith of helping structure the transactions to hide losses. The transactions led AIG to restate its financial statements for the years 2001 to 2004.
In his ruling, Ramos concluded that the evidence “establishes that defendants’ stated objective in effectuating the Capco transaction was not to improve AIG’s assets, but to conceal from investors underwriting losses.”
He also said the evidence “connects both defendants to the improper aspects of the Gen Re transaction.” Ramos concluded, though, that it was premature to hold Greenberg liable “when confronted with his blanket denials,” and that open issues also existed over Smith’s involvement.
Both defendants had sought to dismiss the lawsuit.
Greenberg’s lawyer Lee Wolosky and Smith’s lawyer Vincent Sama said they plan to appeal the ruling concerning Capco. Both said that transaction was not material to AIG.
Greenberg left AIG in March 2005 after nearly four decades at the helm. AIG in 2006 paid $1.64 billion to settle federal and state probes into its business practices, and in July 2010 agreed to pay $725 million to settle a shareholder lawsuit accusing it of accounting fraud and stock price manipulation.
The General Re transaction resulted in five convictions and two guilty pleas of former AIG and General Re officials. Buffett was not accused of wrongdoing.
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 Gerald E. McCormick)
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