Legal News

Judge Implicates Greenberg in AIG Fraud Scandal

By Dan Slater

As an unindicted co-conspirator, AIG’s former CEO, Hank Greenberg, has managed to remain on the sidelines of a fraud scandal in which four former GenRe execs and one former AIG exec were found guilty for using reinsurance deals to inflate AIG’s reserves by $500 million, thereby artificially boosting its stock price. Indeed, at the trial back in January, the prosecutor characterized the roles of Greenberg and GenRe’s former CEO, Ronald Ferguson, as “baseball managers. They recruited players to help them out.” (Yes, we know baseball diamonds don’t have “sidelines,” per se, but work with us.)

But now a judge has taken a stance on Greenberg’s role in the AIG legal morass, according to a WSJ report by Amir Efrati. Last week, district judge Christopher F. Droney, who presided over the trial, issued a decision that denied the defendants a new trial — paving the way for their sentencing — and mentioned that, at trial, the government had presented “sufficient evidence” for a jury to conclude that the AIG conspiracy started with a phone call by Greenberg.

In the decision (read it here), which doesn’t haven’t firm legal implications vis a vis Greenberg, Droney wrote that evidence showed that “starting with Greenberg’s October 31, 2000, phone call to [Ronald] Ferguson, there was an agreement to carry out a transaction to artificially inflate AIG’s loss reserves and deceive AIG’s investors about the amount of the company’s loss reserves and the quality of its earnings.” (Click here for an entirely different take on the AIG situation last week from James Freeman, of the WSJ’s editorial page.)

A spokesman for Greenberg said he “did seek to buy a loss portfolio from Gen Re,” which is a “normal transaction in the insurance industry,” but that “as evidence in the case demonstrated, it was three conspirators at Gen Re who appear to have created a fraudulent transaction for their own purposes in mid-November 2000.”

Full post as published by Law Blog - WSJ.com on May 20, 2008 (boomark / email).