Government Still Pursuing Greenberg Case 9 Years Later

, New York Law Journal

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Maurice Greenberg
Maurice Greenberg arriving at a meeting for AIG's board of directors in 2013. In background is David Boies, lead counsel for Greenberg.

"This is a case that both sides have litigated vigorously," Boies said. "I would not accuse the attorney general of intentionally delaying this, but I would say they have been at least as responsible, and I think more so, than the defendant. I have been practicing law a long time and I have never seen a case that has gone on this long and continues to lumber on even after everything they originally sought has been dismissed."

Fraud Claims

The case centers on two transactions from about 15 years ago.

One of them concerned Berkshire Hathaway's General Reinsurance Corp. (GenRe) and was allegedly orchestrated to conceal a decline in AIG's loss reserves. The other transaction involved the CAPCO Reinsurance Co., an offshore firm controlled by AIG. It was alleged that AIG fraudulently moved about $200 million in losses from its auto warranty business to a Barbados-based shell company.

AIG admitted to structuring sham transactions and settled with the federal government and the state for a record $1.64 billion in 2005, over the vehement objections of Greenberg, who by that time had been removed as CEO but remained an AIG shareholder. The state action launched by Spitzer, and sustained by Cuomo and Schneiderman, alleged that Greenberg and Smith were involved in a deception. It sought damages on behalf of investors.

Boies suggested the initial action brought by Spitzer was rooted in ignorance and continues only because Schneiderman won't let go of a dilapidated case.

He said the CAPCO matter is nothing more than a technical accounting dispute over how certain losses from a discontinued business should be classified in a company's books. Boies said 30 lawyers and accountants approved the accounting method used, and the defendants merely signed off on what their experts told them was the appropriate method.

The GenRe charges, according to Boies, are specious on their face. He said it simply doesn't make sense that the leaders of a company with approximately a trillion dollars in assets would "decide to do something improper" to avoid $5 million in risk.

But courts have repeatedly upheld the core allegation Spitzer levied in 2005.

Ramos, in an October 2010 summary judgment decision, found "ample proof ... which warrants the conclusion that Greenberg was a participant, and likely spearheaded, an illicit arrangement between GenRe and AIG to effectuate a transaction to artificially inflate AIG's loss reserves."

The First Department said the evidence "presents triable issues of fact as to whether defendants knew of, or participated in the fraudulent aspects of the GenRe and CAPCO schemes" (NYLJ, May 9, 2012).

And the Court of Appeals, in its decision last summer, said: "We have no difficulty in concluding that, in this civil case, there is evidence sufficient for trial that both Greenberg and Smith participated in a fraud." (NYLJ, June 26, 2013).

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