New York's highest appellate court has agreed to hear former American International Group Inc. chief executive officer Maurice "Hank" Greenberg's challenge to a lower court's ruling that allowed a lawsuit against him and the company's former chief financial officer to move forward.
The underlying lawsuit was originally filed in May 2005 by then-New York Attorney General Eliot Spitzer. According to the state's complaint, the executives allegedly engaged in sham insurance transactions to bolster AIG's loss reserves and mislead the public about AIG's true financial condition.
In May, the N.Y. Appellate Division's first department agreed with an October 2010 decision by New York State Supreme Court Justice Charles E. Ramos, which denied Greenberg's and Howard L. Smith's request to dismiss the case, and cleared the way for the case to go to trial.
Now that the case is headed to the New York Court of Appeals, Greenberg's lawyer David Boies, is expected to argue that New York's securities-fraud statutes are pre-empted by federal laws, an argument he has made before lower courts.
Efforts to reach Boies for comment were unsuccessful.
James Freedland, a spokesman for the New York Attorney General's Office, said in a statement, "Our office is confident the Court of Appeals will uphold the lower courts decision, and we look forward to trying this case."
The suit alleges Greenberg contacted former General Reinsurance Corp. President Ronald E. Ferguson in October 2000 to ask that his company purchase as much as $500 million in reinsurance from AIG. The transaction, or loss portfolio transfer, from Gen Re to AIG boosted AIG's loss reserves and was booked as reinsurance although it carried no real risk, according to court filings.
Gen Re allegedly paid a $10 million premium that AIG secretly returned through a side deal, plus an additional $5 million fee, prosecutors said.
In connection with the loss portfolio transfer, five former insurance executives, four from Gen Re, including Ferguson, and one from AIG, were convicted in 2008 on charges that included conspiracy, securities fraud, making false statements to the U.S. Securities and Exchange Commission and mail fraud. The convictions were reversed on evidentiary errors, and the case was remanded for a new trial. However, a settlement was reached where the former executives will pay their court-ordered fines, but face no jail time. Under the agreement, the trial will be delayed for 12 months. If the five executives follow the terms of the "deferred prosecution agreement" for that period, prosecutors said they would withdraw the charges. This would mean the executives would not have a criminal record.
In early 2006, AIG agreed to pay $1.64 billion in settlements with federal and state authorities that resolved outstanding litigation related to accounting, financial reporting and insurance brokerage practices, as well as claims related to workers' compensation premium taxes. Spitzer dropped portions of the suit in September of that year.
Greenberg maintained his innocence, but had refused to testify in the case until 2010, after a five-year statute of limitations on possible criminal charges ran out.
In Greenberg's deposition, he testified he still believed the Gen Re transaction was a legitimate one and he also denied knowing of any side deal to return premium back to Gen Re.
In 2009, without admitting any wrongdoing, Greenberg agreed to pay $15 million to settle SEC allegations of improper accounting transactions at AIG, while Smith agreed to pay $1.5 million to settle similar charges.