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Former AIG Director Contradicts Greenberg's Testimony

Posted on 25 Jun 2009

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Frank Zarb, who replaced Maurice R. "Hank" Greenberg as American International Group's (AIG) chairman on an interim basis in March 2005, denied the insurer had reached a mutual agreement with a sister company, Starr International Co., to end a compensation program for select AIG employees after Greenberg left.

The company's lead outside director before Greenberg was forced out as AIG's top executive in March 2005 amid probes into the insurer's accounting. Zarb stepped aside as AIG's chairman in 2006.

"Absolutely not," Zarb said.

AIG has sued SICO for $4.3 billion in damages - representing the sale of tens of millions of AIG shares since Greenberg left the insurer - and the return of more than 185 million shares SICO controls. The stock went to SICO as part of a reorganization of AIG and its affiliates in 1970.

The insurer claims the shares were set aside in a trust to fund a deferred- compensation plan for select AIG employees and executives and were improperly diverted by SICO and its management. The plan was canceled shortly after Greenberg left AIG.

SICO has claimed the shares were placed aside for a number of purposes, including the protection of AIG from a takeover bid and the ultimate funding of a charitable trust when the company is liquidated.

The jury trial is being heard in U.S. District Court in Manhattan.

On Monday, Greenberg, SICO's chairman, testified he believed in May 2005 there was a mutual agreement with between the insurer and SICO to end the program.

He said it was "common knowledge" AIG didn't want to continue with a compensation program funded by SICO if it weren't counted as an expense on the insurer's books.

Greenberg said SICO's voting shareholders, including Greenberg, had said previously that they would cancel the program if it were counted as an expense for AIG.

"I believe there was an agreement," Greenberg said. "This had been brewing since before I left the company in March. There were discussions before I left the company."

However, Greenberg said he didn't receive information about a mutual agreement between the companies in a conversation with or correspondence from Martin Sullivan, who replaced him as chief executive in March 2005, or Zarb.

SICO's voting shareholders voted on May 24, 2005, to cancel the deferred compensation program, but had informed AIG by April 7, 2005, that they intended to discontinue it. The minutes for the May 24 meeting of SICO's shareholders reflects there was a "mutual agreement" between AIG and SICO to end the program.