Less than an hour into the third day of testimony in the fraud trial of former American International Group Inc. Chairman Maurice “Hank” Greenberg, the judge took the reins.
New York State Supreme Court Justice Charles Ramos interrupted Assistant Attorney General David Nachman and asked Greenberg directly about an issue he said led him to a sleepless night – what was the point of AIG’s deal with CAPCO Reinsurance Co., a deal at the heart of the case.
The government claims it was one of two sham transactions designed to hide the company’s financial state from shareholders. The CAPCO transaction was allegedly designed to offload more than $200 million worth of underwriting losses from a failed auto-warranty program, but Ramos wanted Greenberg to address the issue directly.
“I look at this auto-warranty business,” Ramos said. “It did not go well at all. But that’s history. That’s what you see in this rear-view mirror. The future is in the windshield. It wasn’t going to bring back the losses. It wasn’t going to correct the mistakes that were made in the auto-warranty business. Why would AIG go through the CAPCO transaction in the first place? What was the motivation?”
Greenberg said the deal was done to alleviate managers’ concerns that they’d be held accountable for a bad program. He told the judge that he got involved and “made a lot of changes” to quell those concerns.
“That was the only reason,” said Greenberg, who testified earlier that the deal was immaterial to the company’s financial results. “They wanted this off their back.”
“What he’s saying is it’s a competitive situation” within the company, the judge summarized. “‘I don’t want my division to look bad because my competitor, who wants the next job up the ladder, doesn’t have that black mark.”‘
Greenberg is scheduled to resume testifying in the case on Oct. 4, when Nachman is expected to ask him about the details of the other transaction — a deal with Berkshire Hathaway Inc.’s General Reinsurance Corp. used to reverse a decline in loss reserves at AIG.
The case is State of New York v. Greenberg, 401720-2005, New York state Supreme Court (Manhattan).
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