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AIG's Former CEO, CFO to Pay $16.5 Million to Settle Fraud Charges
The American Lawyer
August 07, 2009
For the second time this week, the government filed civil charges against a major player in the global economic crisis only to simultaneously announce the charges had been settled.
The first time, federal regulators announced that Bank of America agreed to pay $33 million to settle allegations that it failed to properly disclose plans to pay millions in bonuses to Merrill Lynch employees. A federal judge refused to approve that settlement on Wednesday, saying it may not be fair to the public, according to Reuters.
Thursday, federal regulators announced that AIG's ex-CEO Maurice "Hank" Greenberg and ex-CFO Howard Smith had agreed to pay $16.5 million to settle charges that they helped the insurance giant hide losses from 2000 to 2005, when an accounting scandal forced Greenberg out. (Greenberg will pay $15 million; Smith will pay $1.5 million).
In a statement, Greenberg's lawyer, David Boies of Boies, Schiller & Flexner, said the ex-CEO is "pleased to finally put these issues behind him," and emphasized that the settlement recognizes that Greenberg wasn't directly responsible for the majority of fraudulent transactions.
But AIG is providing plenty of transactions for lawyers. A story in Thursday's Wall Street Journal estimates the company's bankruptcy will likely generate $1 billion in fees for the investment advisers and legal counsel overseeing the sale of its assets.
It's also creating plenty of work for litigators, especially for Boies and Vincent Sama of Winston & Strawn, who advised Greenberg and Smith on Thursday's settlement. Both lawyers have represented their respective clients for years, including in September, when Greenberg, Smith and two others agreed to pay $115 million to settle similar allegations brought in Delaware Chancery Court.
If all of this is beginning to sound familiar, it might be because five executives were convicted in federal court in Hartford last year of engineering the fraudulent reinsurance deals. (Only one of the convicted defendants worked at AIG; the rest worked at Berkshire Hathaway's General Re, the counterpart in many of the transactions). In that case, Justice Department prosecutors identified Greenberg as an unindicted co-conspirator, according to the WSJ.
Boies has been spending a lot of time with Greenberg lately. In July, he won a jury verdict for Greenberg after AIG sued Greenberg and his new company, claiming Greenberg wrongly took control of shares that were supposed to be held in trust for AIG and its employees, according to our colleague Andrew Longstreth. (Ted Wells of Paul, Weiss, Rifkind, Wharton & Garrison represented AIG in that case, creating a dream matchup of litigation heavyweights).
AIG-related legal work isn't done yet. Greenberg still has to resolve a similar lawsuit brought by the New York Attorney General's office, and the company still plans to shed several assets to repay its government bailout debt.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
