Ex-AIG chief Greenberg settles accounting fraud lawsuit

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By Karen Freifeld

<span class="articleLocation”>Former American International Group Inc
Chief Executive Maurice “Hank” Greenberg on Friday settled a
12-year old lawsuit brought by the New York attorney general
that accused him of orchestrating sham transactions at the
insurer to hide its true financial condition.

“After over a decade of delays, deflections, and denials by
Mr. Greenberg, we are pleased that Mr. Greenberg has finally
admitted to his role in these fraudulent transactions and will
personally pay $9 million the State of New York,” New York
Attorney General Eric Schneiderman said in a statement.

Greenberg, 91, was sued in 2005 by then-New York Attorney
General Eliot Spitzer for orchestrating a $500 million
transaction with General Re, a unit of Warren Buffett’s
Berkshire Hathaway that boosted loss reserves.

The second transaction, with Capco Reinsurance Co, converted
a $210 million underwriting loss from a failed automotive
warranty program into an investment loss.

“I knew these facts at the time I initiated, participated in
and approved these two transactions,” Greenberg said in a

Greenberg’s $9 million payment stems from performance
bonuses he received from 2001 to 2004.

His co-defendant, fomer AIG chief financial officer Howard
Smith, also settled the case and will pay $900,000 to the state.
Smith admitted he knew the facts when he participated in and
approved the transactions.

The settlement is a far cry from earlier estimates of
liability in the case. Schneiderman, who inherited the lawsuit,
was forced to drop damages claims as high as $6 billion after a
class action settlment over the accounting won court approval in

Greenberg and other defendants paid $115 million to
shareholders in that settlement.

Schneiderman continued to pursue the lawsuit, saying it was
needed to help ensure those who commit fraud, no matter how rich
or powerful, are held publicly accountable.

If found liable, he was seeking to ban Greenberg and Smith
from serving as officers and directors of public companies and
from the securities industry. No bans are part of the

He also was seeking to claw back more than $50 million in
bonuses, with interest.

Greenberg already disgorged $7.5 million in bonuses to SEC
in addition to a $7.5 million penalty.

The settlement was negotiated with the help of renowned
lawyer, Kenneth Feinberg.

David Boies, the well-known New York attorney who represents
Greenberg, could not immedately be reached for comment. Greenberg nearly settled the case in 2008 with a $100 million
gift to charity, Boies told Reuters in September, but then the
market crashed, affecting the value of Greenberg’s AIG stock

Greenberg led the New York-based insurance giant for four
decades before he was ousted in 2005. The following year, AIG
paid $1.64 billion to settle federal and state probes into its
business practices

Greenberg is currently chairman and CEO of Starr & Co., a
priate insurance company. Smith is its vice chairman of finance.

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