AIG's Greenberg Found Liable for Fraudulent Action

Daniel Wise

New York Law Journal

A New York state judge has held Maurice "Hank" Greenberg, the former head of American International Group Inc., liable for "spearhead[ing]" a fraudulent transaction to remove $200 million in losses from the giant insurer's books. Manhattan Supreme Court Justice Charles E. Ramos' ruling handed a victory to Attorney General Andrew Cuomo, who is pressing the suit against Greenberg and AIG's former chief financial officer, Howard Smith, to recover investor losses stemming from two allegedly sham transaction designed to hide the company's true financial condition.

Ramos's 83-page ruling in People v. Greenberg, 401720/05, granted the attorney general summary judgment on his claim that the two former AIG officials had fraudulently moved $200 million in losses off AIG's books to a Barbados-based corporation, the CAPCO Reinsurance Company. But the ruling denied the attorney general's motion for summary judgment on a second transaction involving a claim that the two defendants had ginned up its reserves by $500 million through a sham transaction with General Re Corp., a unit of Berkshire Hathaway Inc. The General Re transaction resulted in seven convictions, two of them by guilty pleas, of former AIG and General Re officials.

In granting summary judgment on the CAPCO deal, Ramos found the evidence "established that the defendants' stated objective in effectuating the … transaction was not to improve AIG's assets, but to conceal from investors underwriting losses." The judge will hold a separate hearing to determine the amount of damages stemming from the deal.

Ramos also denied motions from both Greenberg and Smith seeking summary judgment dismissing the case. Lawyers for both men were quoted by Reuters as saying that they would appeal the ruling holding their clients liable for the CAPCO deal.