American International Group Inc.’s (AIG) former chief executive, Maurice "Hank" Greenberg lost his bid to dismiss a suit by New York Attorney General Andrew Cuomo that alleges a fraudulent insurance transaction with Warren Buffett’s General Reinsurance Corp.
State Supreme Court Justice Charles Ramos in Manhattan denied Greenberg’s motion seeking to end Cuomo’s lawsuit, clearing the way for trial.
“There is ample proof, exclusive of the e-mails and notes, which warrant the conclusion that Greenberg was a participant, and likely spearheaded, an illicit arrangement between Gen Re and AIG to effectuate a transaction to artificially inflate AIG’s loss reserves,” Ramos wrote.
The judge is presiding over a lawsuit filed in 2005 by then-New York Attorney General Eliot Spitzer that accused Greenberg, 85, and former AIG Chief Financial Officer Howard Smith of using sham reinsurance deals and other transactions to distort the insurance company’s financial condition.
AIG, once the world’s largest insurer, ousted Greenberg in March 2005, two months before Spitzer sued him and Smith, alleging they misled regulators and investors.
AIG, based in New York, eventually restated its earnings, lowering them by $3.4 billion, and agreed to pay $1.64 billion to settle claims by Spitzer and other regulators, without admitting or denying wrongdoing. In court papers filed in July 2006, Greenberg argued AIG’s 2005 restatement was unnecessary and designed to force him to retire.
Four former Gen Re executives, including ex-Chief Executive Officer Ronald Ferguson, and one from AIG, Christian Milton, were convicted in 2008 at a fraud trial focusing on AIG’s transaction with Gen Re. The fraud cost AIG shareholders $544 million to $597 million, ruled the federal judge in Hartford, Connecticut. Two other Gen Re executives pleaded guilty.
In his ruling, Ramos also denied a summary-judgment motion by Smith seeking to throw out Cuomo’s case. Ramos denied Cuomo’s motion for summary judgment in the state’s favor regarding the Gen Re transaction, saying the claim should go to trial. The judge did grant the attorney general’s request for summary judgment on another transaction, known as CAPCO. Ramos wrote that damages tied to that transaction, “if any,” will be resolved at a hearing.
Greenberg will appeal the decision on CAPCO, Lee Wolosky, an attorney at Boies, Schiller & Flexner LLP, said in a statement. Smith’s attorney, Jeffrey
Burke at Winston & Strawn LLP, said in a statement that Ramos “properly denied” the attorney’s request for summary judgment regarding the Gen Re transaction. Ramos, he said, “misapplied the relevant law and ignored the substantial evidence” regarding the CAPCO transaction.
“We are confident that Mr. Smith will be fully vindicated on appeal,” Burke wrote.