Banking Law

One Too Many Allegations

Another stunt started with a bang by Eliot Spitzer was completed by the SEC with a whimper last week. Hank Greenberg, the former AIG CEO who refused to settle with Spitzer or the SEC in 2006 when AIG bit the bullet in 2006 to the tune of $1.6 billion and kicked Greenberg to the curb, paid the SEC a measly $15 million. Spitzer and his bête noire, The Wall Street Journall, had totally different views of the lessons learned. What a surprise.

The Journal, in an editoriall that first ran last Friday, focused on Spitzer's grandstanding, always low hanging fruit in the Bozo-bashing game. In his prime, Spitzer couldn't scratch his posterior without calling a press conference to publicize the fact, and it's true that he's an easy guy to despise. Heck, we love to loath the philandering former governor. Moreover, it's true that while Spitzer was all over the Sunday morning talk shows blathering about "criminal conduct" of Greenberg and others involved in the AIG mess, Greenberg was never indicted, by Spitzer, his successor, or the federales. $15 million is chump change to a man like Greenberg, who must be relieved that his defense team will finally stop sending their kids to Harvard on his nickel. You can legitimately claim that after three years of pursuit, Spitzer and his cohorts were "faced" by Greenberg.

Nevertheless, Spitzer makes valid points in his response to The Journal in his Slate column of today. He correctly notes that five people associated with AIG were, in fact, convicted of federal criminal charges arising out of the scandal and that Greenberg was named as an unindicted co-conspirator. While Greenberg can pass the smell test by asserting that such status proves nothing, legally, the ca-ca hit the fan on Hank's watch. It's hard to defend Hank as a lily-white victim of a nefarious plot cooked up by Boy Spitzer solely to make himself the king (although that plot line has the ring of truth, doesn't it?). Notwithstanding The Journal's assertion that $1.6 billion was a pittance to a money-making machine like AIG, the average observer (or even the aberrant observer, like the author of this blog) finds that hard to swallow. Paying that much cash to avoid criminal prosecution tells most people with no axe to grind that something was rotten at AIG and if Hank didn't know about it, he should have.

The most telling criticism made by Spitzer is one that also struck this Spitzer-basher: that the restatement of earnings forced by Spitzer hurt AIG far more than the accounting adjustments that happened during Hank's time at the helm. So what? If the restatement wasn't justified by the facts, why did AIG not only agree to make them but to pay such a huge fine to boot? If AIG's accounting treatment was correct, then reversing the accounting treatment, paying the fine, and blistering the shareholders as a result was an act of rank cowardice for which the management and board of AIG should be held accountable. Have such claims been made by AIG's shareholders?

[Sound of crickets chirping]

No, they sued everyone in sight because of the restatement (including Greenberg and AIG's outside accountants, PricewaterhouseCoopers), but not because the restatement was allegedly improper. Spitzer might have had power, but unless he's Darth Vader with Jedi mind powers, making AIG cough up $1.6 billion with absolutely no case to support him doesn't sound plausible to me. While I usually agree with The Journal with respect to anything having to do with Eliot Mess, in this case, I think the editorial page should have simply called Spitzer a clown, based solely upon the fact that he is, indeed, a clown, and left it at that. By going one allegation too far, they gave Spitzer a spitball to fire back.

Full post as published by Bank Lawyers Blog on August 10, 2009 (boomark / email).