David Boies of Boies Schiller & Flexner and David Ellenhorn, senior trial counsel for the Attorney General’s Office (NLJ/Diego Radzinschi; NYLJ/Rick Kopstein)
Former AIG CEO Maurice “Hank” Greenberg will not get a jury trial in the drawn-out civil fraud case the New York Attorney General’s office has been pursuing against him for the last nine years.
Manhattan Supreme Court Justice Charles Ramos (See Profile) ruled from the bench on Tuesday that the two claims remaining in the case, for disgorgement and injunctive relief, do not provide a right to trial by jury, granting a motion by the attorney general to strike the jury demands of Greenberg and his co-defendant, former AIG CFO Howard Smith.
The ruling capped an argument in which attorneys for Greenberg and Smith urged the judge to grant summary judgment dismissing the remaining claims against them. David Boies, of Boies, Schiller & Flexner, argued for Greenberg, and Vincent Sama, a partner at Kaye Scholer, argued for Smith. Ramos is considering the defendants’ summary judgment motions.
The case, People v. Greenberg, 401720/05, goes back to 2005, when former Attorney General Eliot Spitzer filed a suit against Greenberg and Smith over their alleged role in sham transactions AIG undertook to make its financials look better than they actually were. Greenberg was forced to step down as CEO soon after Spitzer began investigating. In 2006, AIG agreed to pay $1.64 billion to end state and federal investigations, and admitted to the sham transactions. Greenberg, however, opposed that settlement and continued to maintain that he had done nothing wrong.
The attorney general’s case against Greenberg and Smith has progressed slowly, thanks to multiple appeals by the defendants along the way. The two men have gotten all claims dismissed except one for disgorgement of ill-gotten gains and one seeking an injunction barring them from serving as officers or directors of public companies.
Most recently, they tried to get the Appellate Division, First Department, to remove Ramos from the case, claiming that he was biased against them. The First Department refused in February (NYLJ, Feb. 18).
In addition to fighting the state’s lawsuit, now being prosecuted by Attorney General Eric Schneiderman, Greenberg paid $15 million to settle with the Securities and Exchange Commission. Smith agreed to pay $1.5 million and accepted an injunction barring him from serving as an officer or director of a public company for three years.
AIG also agreed to pay Greenberg up to $150 million to settle litigation over his termination. Both settlements included releases of all claims against Greenberg.
Greenberg, 88, now runs C.V. Starr & Co., a privately held financial services firm. Smith is a vice chairman at Starr.
Boies argued on Tuesday that, in nine years of litigation, the government had failed to produce any evidence that Greenberg had personally benefited from AIG’s transactions.
“They had all of this time to come up with evidence,” he said. “They haven’t done so.”
David Ellenhorn, senior trial counsel for the Attorney General’s Office, countered that public documents show that Greenberg’s compensation was performance-based. If the apparent performance of the company was inflated by the sham transactions, he said, that would mean that Greenberg personally benefited.
Boies said that wasn’t enough without evidence of how that performance-based compensation was determined.
Ramos appeared skeptical, suggesting that Boies was trying to impose too high a burden on the government at the summary judgment stage, effectively asking it to prove its entire case.
“That’s their burden at trial,” he said.
Sama, arguing for Smith, said that the settlement with the SEC should have ended the case completely.
“They really want to punish these defendants,” he said, later adding, “They realized there’s no purpose for this case anymore, so they’re searching for a purpose.”
The hearing turned to the issue of the injunction. Sama pointed out that an injunction already had been imposed against his client under his settlement with the SEC, which he obeyed during the three years it was in effect. Boies argued that Greenberg’s new company was privately held and that he had pledged he would never take it public, making an injunction unnecessary.
Throughout the argument, Ellenhorn characterized the state’s case as necessary to hold the two men accountable for their role in AIG’s fraud, especially Greenberg.
“At the end of the day, what Mr. Boies is saying is, we stalled this case for years, and now it’s too late to do anything about Mr. Greenberg,” he said.
“[Greenberg] doesn’t want to admit he did anything wrong,” Ellenhorn continued, pointing to a press release Greenberg put out immediately after his SEC settlement in which he continued to deny the allegations, and to a book he wrote, “The AIG Story,” that painted him in a very positive light. “If there has been a person who’s shown no contrition, it’s Hank Greenberg.”