Maurice R. "Hank" Greenberg, the prominent insurance executive who transformed American International Group Inc. into a global powerhouse, is finally on trial.

Eleven years ago, Eliot Spitzer, New York Attorney General at the time, filed a financial-fraud civil-court lawsuit against Mr. Greenberg. What followed was a decade of delays, new attorneys general and a narrowing of the accusations. Starting Tuesday, the government began trying to prove Mr. Greenberg approved two financial maneuvers between 2000 and 2003 aimed at duping shareholders into believing AIG's core insurance operating results were better than they were.

Mr. Greenberg arrived at New York Supreme Court in Manhattan moments before the opening arguments got under way and took a seat at the large table his lawyers share with the state at the other end. For much of the time, he leaned back without moving, hands clasped in front. During a break, he scrolled his cellphone for messages and made a phone call.

After leaving the courtroom, he said in a brief interview: "I've been thinking about this for 11 years. It went well."

In the opening statements in the civil lawsuit, state senior trial counsel David Ellenhorn said the former AIG chief executive had "designed, created, negotiated and implemented every aspect" of the transactions to bolster the company's stock price.

Mr. Ellenhorn said a ban on Mr. Greenberg serving as a public-company officer or director, as the state is seeking, would have "a deterrent effect" on CEOs of other companies and prove that "you cannot manipulate the books of your company" and get away with it.

David Boies, Mr. Greenberg's longtime lawyer, responded in his opening statement that the state "doesn't have a single witness to testify," nor does it have documents, to link his client to the purported wrongdoing.

If found liable by Judge Charles Ramos in the nonjury trial, the 91-year-old could be ordered to forfeit past bonuses totaling millions of dollars, plus interest, and be barred from the securities industry as well as from serving as a public-company officer or director. Also named as a defendant is former AIG Chief Financial Officer Howard Smith, 71 years old, who faces the same potential sanction.

The two claims that will be dissected in coming days are what remains of a wide-ranging civil suit filed by Mr. Spitzer in 2005, in one of his highest-profile moves just before his successful run for New York governor in 2006.

The original suit alleged nine different maneuvers by the former AIG chieftain to elevate the share price, and the state early on sought $6 billion in damages. Mr. Spitzer's 2005 probe led to Mr. Greenberg's resignation. In 2008, Mr. Spitzer resigned as governor in a sex scandal involving prostitutes, less than two years after taking office.

The state narrowed the case against Mr. Greenberg over the years and gave up an earlier demand for $6 billion in damages after a federal judge in 2013 approved a settlement of class-action litigation filed by AIG shareholders. That $115 million settlement mooted the multibillion-dollar damage claims in the state's lawsuit.

Beginning Wednesday, the state's lawyers are expected to call the first of about 10 witnesses, most of them people who worked at AIG for Mr. Greenberg when the alleged wrongdoing occurred, according to trial-preparation materials for the case reviewed by The Wall Street Journal.

The defense's list of potential witnesses is far longer than the state's, its trial-preparation documents show, with more than two-dozen fact witnesses—mostly AIG veterans—and 10 experts to possibly take the stand.

The state maintains Mr. Greenberg, in one of the alleged accounting frauds, initiated a transaction with Berkshire Hathaway Inc.'s General Re unit to help AIG improperly boost its claims reserves in 2000 and 2001 by about $500 million, misleading investors about the amount of losses that AIG could absorb. Berkshire isn't named as a defendant in the lawsuit.

The other transaction at issue allegedly was designed to mischaracterize underwriting losses in an auto-warranty business as capital losses. Insurance investors closely watch underwriting results as core to a company's operations. The state alleges Mr. Greenberg enmeshed himself "to an extraordinary degree" in aspects of how the auto-warranty losses could be mitigated.

The warranty program was part of U.S. operations overseen by his son Evan Greenberg, when he worked at AIG. Evan Greenberg, who left AIG in 2000 and now is chairman and chief executive of Chubb Ltd., has never been accused by the Attorney General's office of wrongdoing in the auto-warranty matter.

 

(END) Dow Jones Newswires

September 13, 2016 23:45 ET (03:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
American (NYSE:AIG)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more American Charts.
American (NYSE:AIG)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more American Charts.