The New York State Attorney General has decided to take an unexpected action in order to move ahead with its civil fraud case against the former head of American International Group. The office of AG Eric Schneiderman will forgo its legal right to challenge Maurice Greenberg’s $115 million settlement of a separate class-action lawsuit, and the accompanying right to obtain as much as $6 billion worth of cash damages in the office’s own legal action, to expedite a trial that will put the ex-AIG CEO on the witness stand.
In a letter to a state court judge, Schneiderman’s office wrote that it would continue to seek disciplinary actions against Greenberg, including a ban from the securities industry and an injunction against his serving as a director or officer of a publicly traded company.
While approving the attorney general’s decision to drop any claims of cash damages, an attorney for Greenberg criticized the active attempt to bring the case to trial.
“Mr. Greenberg, in his role as ‘control person’ at A.I.G., has already voluntarily stipulated with the S.E.C. to broader injunctive relief than the New York attorney general could obtain in any event,” David Boies stated. “This case is over. Someone should put it out of its misery.”
Schneiderman’s move is intended to finally bring the eight-year-old case against Greenberg and a former A.I.G. chief financial officer, Howard Smith, to trial. The legal skirmish, which is based in accusations that the insurance company committed accounting fraud that brought on a $3.9 billion restatement in 2005, has been implemented by the current attorney general and two of his predecessors, Eliot Spitzer and (now-Governor) Andrew Cuomo.
The seemingly improper actions taken by A.I.G. under scrutiny in the two cases occurred prior to the insurer’s $182 billion taxpayer-financed bailout in the fall of 2008.
But Attorney General Schneiderman’s case became newly vulnerable last month when Greenberg and other defendants agreed to pay $115 million to settle the class-action lawsuit that had been filed by A.I.G. investors. The federal court judge who is handling that lawsuit approved the settlement on April 10, calling it a fair deal.
Other defendants had already settled the investor lawsuits; A.I.G. paid out approximately $725 million last year.
The attorney general posited in a court filing in late 2012 that a settlement of the class-action lawsuit would still enable him to pursue his case.
However, attorneys representing Greenberg have argued that the latest settlement effectively obliterates what they contend are duplicative claims that Schneiderman had been going after in his lawsuit.
The attorneys are pursuing a motion for summary judgment that would effectively dismiss Schneiderman’s claims, and they have argued that a separate settlement with the Securities and Exchange Commission actually included injunctive relief.
As opposed to becoming entangled in a court fight over pursuing cash damages that the attorney general was unlikely to win, he will instead have the freedom to focus on forcing the former A.I.G. chief executive to testify in court, according to individuals who have been briefed on the matter.
In Schneiderman’s perspective, requiring A.I.G.’s Greenberg to testify as a witness in court has greater ultimate value than securing additional payment in addition to the class-action lawsuit.
“Attorney General Schneiderman feels strongly that individuals in the financial services industry who perpetrate fraud, no matter how wealthy or powerful, must be held publicly accountable,” Damien LaVera, a spokesman for Schneiderman, stated. “And that is why we believe justice will best be served by proceeding to a long overdue trial of Mr. Greenberg as quickly as possible.”