Maurice Greenberg is under the legal microscope again. The 85-year-old former American International Group Inc. chairman and chief executive was dealt a setback on Friday as a New York justice's decision held him liable for damages arising from one of two questionable reinsurance transactions from the mid-1990s.
In a ruling on Thursday, Justice Charles E. Ramos of New York State Supreme Court found Greenberg and another AIG exec, Howard Smith, AIG’s former chief financial officer, liable on a transaction that involved an organization called the Capco Reinsurance Co. In a statement, the attorney general’s office alleges that the company hid more than $200 million in losses from an auto warranty insurance program.
The New York Times reported that in his Thursday ruling, Justice Ramos refused to grant summary judgment for the New York attorney general's office on the larger count that Messrs. Greenberg and Smith used a sham reinsurance deal between AIG and Berkshire Hathaway Inc.'s General Re Corp. to hide AIG's losses and inflate its reserves in an effort to mislead Wall Street stock analysts.
Justice Ramos in his ruling concluded that the evidence “establishes that defendants’ stated objective in effectuating the Capco transaction was not to improve AIG’s assets, but to conceal from investors underwriting losses.”
The judge, however, denied attorney general Andrew Cuomo’s request for a judgment against both defendants over a transaction involving General Re, a unit of Berkshire Hathaway, to improve AIG’s loss reserves by $500 million without transferring risk.
Cuomo accused both Greenberg and Smith of helping establish the transactions to conceal losses. The transactions led AIG to restate its financial statements for the years 2001 to 2004, notes the Times.
The judge said the evidence “connects both defendants to the improper aspects of the Gen Re transaction.” But concluded that it was premature to hold Greenberg liable.
In early 2008, federal prosecutors obtained five convictions against four former Gen Re executives—including former Gen Re CEO Ronald Ferguson and former AIG VP of Reinsurance Christian Milton—in the sham reinsurance case.
Greenberg has been defending this lawsuit since 2005, and plans to appeal, said his attorney.