Trial Begins for Maurice Greenberg, Ex-A.I.G. Chief Accused of Fraud

The 11-year-old accounting fraud case against the former American International Group chief executive Maurice R. Greenberg finally came to trial on Tuesday in a state courthouse in Lower Manhattan.

A senior New York State trial counsel, David N. Ellenhorn, said that while defense lawyers had used “delaying tactics,” including seven pretrial appeals, “the day of reckoning” had finally arrived for Mr. Greenberg, who is known as Hank, and A.I.G.’s former chief financial officer, Howard I. Smith.

The civil case, filed in May 2005 by former New York Attorney General Eliot Spitzer, accused the men of orchestrating sham transactions aimed at bolstering A.I.G.’s financial statements by inflating reserves and hiding insurance losses by converting them into investment losses.

“The time has come,” Mr. Ellenhorn said on Tuesday, “for Mr. Greenberg and Mr. Smith to now be held responsible.”

While critics have urged the state’s current attorney general, Eric T. Schneiderman, to drop the charges because the men have settled other lawsuits making similar claims — or because of Mr. Greenberg’s age, 91 — Mr. Ellenhorn said a guilty verdict was needed to “send a message to C.E.O.s of other companies” that “you can’t do this sort of thing.”

Mr. Greenberg, seated in court on Tuesday next to his lawyer, David Boies, sometimes scowled or smiled during the proceedings. While he declined to comment on the substance of the case, afterward he told reporters on the courthouse steps, “It went well.” Asked about his thoughts during Mr. Ellenhorn’s 55-minute opening statement, Mr. Greenberg said he was at times thinking about his own plans to depart later in the day on a trip to Argentina.


Maurice Greenberg, American International Group’s former C.E.O.

Mark Lennihan/Associated Press

In his opening for the defense, Mr. Boies said there was no evidence that Mr. Greenberg knew there was anything improper about the transactions, adding that they were not material to A.I.G.’s earnings or book value. “This case is devoid of any admissible evidence that ties Mr. Greenberg to anything that was improper in either of these transactions,” he said.

The case centers partly on a reinsurance deal A.I.G. struck with General Reinsurance Corporation. It effectively increased A.I.G.’s reserves by $500 million at a time when analysts were watching whether the company was bleeding down its reserves to help lift its earnings. In a second transaction, A.I.G. is accused of using a supposedly independent offshore reinsurer to convert insurance losses into investment losses even though A.I.G. controlled the offshore vehicle.

While hearsay evidence was allowed at earlier stages in the case, Mr. Boies said on Tuesday, “What matters now is what the admissible evidence shows” regarding “what Mr. Greenberg actually did and actually knew.” He said it was General Re executives who actually designed the structure of the reinsurance deal.

State Justice Charles E. Ramos, who has presided over the case from the start, allowed Mr. Ellenhorn to proceed with only a few questions, but he interrupted Mr. Boies a half-dozen times. At one point, he reminded Mr. Boies that the state’s case rested partly on the impact of both transactions on A.I.G.’s stock price, not its earnings or book value.

Mr. Boies raised defense allegations that Mr. Spitzer had it in for Mr. Greenberg in pursuing the case against A.I.G., based on an affidavit from Mr. Spitzer’s predecessor, Dennis C. Vacco. But Mr. Ellenhorn objected, saying that Justice Ramos had already ruled that such issues were not part of the case.

Before this trial phase, Justice Ramos had ruled in favor of the state on one of the charges, but was overturned on appeal, and the defense unsuccessfully sought to remove him from the case.

In a trial expected to last into 2017, the state is seeking damages of more than $50 million, based on the size of bonuses Mr. Greenberg and Mr. Smith received after the transactions in question, plus interest. It also wants to bar them from serving in the securities business or as officers or directors of a public company.

Seeking to counter the state’s claim for the defendants’ past compensation, Mr. Boies noted that company officials had praised Mr. Greenberg’s record for building A.I.G. when he resigned in 2005.

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14 September 2016 | 12:21 am – Source:


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