Maurice R. Greenberg’s $9 million settlement agreement with New York authorities over alleged fraud brings to a close a case that centered on an arcane area of reinsurance and led to the ouster of one of the global insurance industry’s most iconic leaders. 

While the ultimate settlement was with New York Attorney General Eric Schneiderman, when it started the case pitted Mr. Greenberg, then head of American International Group Inc. and probably the most well-known U.S. insurance executive of the past 50 years, against Eliot Spitzer, the politically ambitious then-New York attorney general who used the power of the subpoena to allege fraud at numerous Wall Street firms. 

Mr. Spitzer went on to become governor of New York and later resigned in disgrace amid a prostitution scandal, but not before he had irreversibly shaken up the world of commercial insurance. Mr. Greenberg, now aged 91, continues to run Starr Cos., an international insurance firm that competes with AIG.

Following is a timeline of key events in the legal battle between Mr. Greenberg and New York authorities:

OCTOBER 2004

New York Attorney General Eliot Spitzer, the so-called sheriff of Wall Street, turns his attention to the commercial insurance sector, alleging that some of the world’s largest brokers and insurers conspired to rig quotes for commercial clients in an effort to maximize commissions. The charges and allegations were eventually settled at a cost of billions to the sector.

NOVEMBER 2004

• Mr. Spitzer and the U.S. Securities and Exchange Commission start issuing subpoenas against reinsurers seeking information on finite risk reinsurance and other nontraditional reinsurance products. The coverage had gained popularity in the 1980s as a means for insurers and reinsurers to handle long-tail liabilities over several years. The structures, which were often highly complex, cost less than traditional reinsurance as risk transfer was limited.

• AIG settles SEC charges over financial transactions between AIG units and PNC Financial Services and Brightpoint Inc. Among other things, the SEC alleged that AIG helped PNC shift poorly performing loans from its balance sheet and helped Brightpoint improve its results through an insurance policy that did not transfer risk. 

FEBRUARY 2005

Mr. Spitzer and the SEC issue a subpoena against AIG relating to investigations of nontraditional insurance products and certain assumed reinsurance transactions, as well as AIG’s accounting for these transactions.

MARCH 2005

Mr. Greenberg is ousted as chairman and CEO of AIG, a company he had headed for 37 years and transformed into the world’s largest commercial insurer. In addition, Howard I. Smith, the insurer’s chief financial officer, is replaced. AIG announces that it will delay filing its annual report with the SEC. The ouster by the AIG board is widely presumed to stem from its concern over investigations into a $500 million retrocessional loss portfolio transfer contract assumed by AIG from Berkshire Hathaway Inc.’s General Re Group in 2000. Regulators wanted to know whether AIG correctly accounted for the transaction as reinsurance or whether the deal was more of a loan made to boost the insurer’s reserves. AIG later admitted that it accounted for the transaction improperly. 

APRIL 2005

Mr. Greenberg takes the Fifth in an interview with investigators. He says: “I am willing to accept responsibility and to account for the performance of my duties, but I believe that good order and fairness require that I have an adequate opportunity to be advised of the issues to be investigated and to my alleged involvement therein.” Investigators had earlier interviewed Berkshire Hathaway Chairman Warren Buffett regarding the Gen Re deal.

MAY 2005

• Mr. Spitzer and the New York Insurance Department charge AIG, Mr. Greenberg and Mr. Smith with fraud. Among other things, the suit charges that AIG engaged in transactions — personally conceived and negotiated by Mr. Greenberg with Gen Re — to create the appearance of insurance reserves where none existed.

• AIG restates five years of earnings, cutting $3.92 billion of profit through 2004, and increases reserves. New CEO Martin Sullivan says the restatement “reflects the result of our detailed and thorough review of AIG's major business units globally.” Mr. Greenberg later challenges the restatement.

OCTOBER 2005

AIG sues Starr International Co., which was affiliated with AIG and which Mr. Greenberg heads, seeking to gain control of billions of dollars’ worth of AIG shares. The suit is a counterclaim against a suit filed by Starr in June seeking, among other things, a $15 million art collection from AIG. The suits began a long-running battle between AIG and Mr. Greenberg for control of Starr assets. Mr. Greenberg continues to head Starr Cos., which he has developed into an international insurer.

FEBRUARY 2006

• AIG pays $1.6 billion to settle fraud charges. The settlement covers the alleged sham transaction with Gen Re, allegations that the insurer participated in the insurance industry bid-rigging and contingent commissions scandal, and allegations that the insurer improperly booked certain workers compensation premiums. The settlement does not extend to Mr. Greenberg or Mr. Smith.

• Ronald Ferguson, retired CEO of Gen Re; Elizabeth Monrad, former Gen Re chief financial officer; Robert Graham, former Gen Re assistant general counsel; and Christian Milton, former vice president of reinsurance at AIG, all enter not-guilty pleas to charges that they conspired to commit fraud in connection with the 2000 loss portfolio transfer. Christopher Garand, Gen Re’s former head of finite reinsurance underwriting, also faces charges.

SEPTEMBER 2006

Mr. Spitzer drops some charges against Mr. Greenberg and Mr. Smith, including allegations that the two executives guided AIG schemes to avoid state workers compensation premium taxes and to conceal AIG’s control of several offshore entities, and drops a demand for punitive damages. The amended suit continues to charge that the two misled investors with sham transactions that artificially boosted AIG’s reserves and disguised underwriting losses.

NOVEMBER 2006

Mr. Spitzer wins the New York gubernatorial election and is replaced as attorney general by Andrew Cuomo, who continues with the case against Mr. Greenberg. Mr. Spitzer lasts a little over a year as governor of New York before he is forced to step down after he was allegedly caught on federal wiretap arranging to meet a high-priced prostitute.

DECEMBER 2007

In what would be signs of far worse problems to come, AIG reports that the value of its book of credit default swaps dropped by about $1.05 billion to $1.15 billion between Sept. 30 and Nov. 30, 2007. The insurer also says that the value of residential mortgage-backed securities investments it holds declined by $2.6 billion over the same period.

FEBRUARY 2008

After a five-week jury trial, Mr. Ferguson and the other defendants in the Gen Re loss portfolio transfer case are found guilty of various counts of conspiracy to commit securities and mail fraud and making false statements to the SEC. Prosecutors alleged that the deal was initiated during a phone call between Mr. Ferguson and Mr. Greenberg, who was named as an unindicted co-conspirator in the trial. The convicted executives are later sentenced to fines and jail terms, but the convictions are overturned on appeal, with the appeals court ruling that the district court issued an inappropriate jury instruction. Before the case is retried, the executives admit fraud and agree to pay fines as part of a settlement.

MAY 2008

AIG reports a $7.81 billion first-quarter loss. The loss is attributed to the credit default swap portfolio held by AIG Financial Products Corp. One month later, Mr. Sullivan is ousted as CEO of the insurer and is replaced by former Citicorp Inc. executive Robert B. Willumstad.

SEPTEMBER 2008

AIG receives a massive bailout from the federal government after Lehman Bros.’ bankruptcy sparks a dramatic decline in AIG’s stock price in a stock market panic and AIG fails to raise sufficient private capital to prevent fatal downgrades by rating agencies. Mr. Willumstad is replaced by former Allstate Corp. CEO Edward M. Liddy. During the financial crisis, AIG received about $180 billion in federal assistance. It later repaid the loans but emerged as a smaller and less influential player in the international insurance market. Debate continues to this day as to whether the insurer would have made its ill-fated credit default swaps investments if the famously hands-on Mr. Greenberg had still been at the helm of the insurer.

AUGUST 2009

• Mr. Greenberg agrees to pay $15 million and Mr. Smith agrees to pay $1.5 million to settle SEC charges that they made misstatements that helped AIG falsely report results that met or exceeded earnings and growth targets, and were liable as “control persons” for AIG’s security laws violations. The relatively modest settlement amount and limited charges were largely seen as a victory for Mr. Greenberg.

• Meanwhile, new AIG CEO Robert Benmosche reveals that he had reached out to Mr. Greenberg as a sounding board before taking the job. “I have enormous respect for him. He has built an incredible business,” Mr. Benmosche said. Mr. Greenberg reciprocates the compliments. Later in the year, Mr. Greenberg and Mr. Smith agree to settle pending lawsuits between them and AIG. Mr. Benmosche would lead AIG until 2014, when he stepped down for health reasons and was replaced by current CEO Peter Hancock. Mr. Benmosche died in 2015.

SEPTEMBER 2009

Mr. Greenberg files a memorandum seeking to dismiss the suit against him and Mr. Smith originally filed by Mr. Spitzer. In the heavily redacted memo, Mr. Greenberg asserts that the Gen Re deal and the alleged improper use of offshore vehicle Capco Reinsurance Co. to remove auto warranty losses from AIG’s books, among other things, were unfounded and “miniscule relative to AIG's size.”

APRIL 2010

During a hearing on Mr. Greenberg’s motion to dismiss the Gen Re suit and Mr. Cuomo’s motion for summary judgement in the case, state trial court Judge Charles Ramos tells Mr. Greenberg’s lawyer that prosecutors have “put together a devastating case, a very strong case, and we both know it. I am very, very much focused on those two conversations Mr. Greenberg had with Mr. Ferguson.”

OCTOBER 2010

Judge Ramos rules that Mr. Greenberg and Mr. Smith can be held liable for damages in the Capco portion of the case but refuses to grant summary judgement on the Gen Re deal. Mr. Greenberg vows to appeal the Capco ruling. A few months later, Mr. Greenberg unsuccessfully seeks to have the judge removed from the case, alleging that his comments about a “devastating case” showed bias. However, the trial is put on hold pending Mr. Greenberg’s earlier appeal.

MAY 2012

A divided appeals panel rules that the case should go to trial, but it also rules that the lower court acted prematurely in allowing summary judgment in the Capco ruling. As part of the appeal, Mr. Greenberg had argued that federal securities law trumped the state action, but the appeals court rejected the argument. Mr. Greenberg appeals the decision to New York’s highest court.

APRIL 2013

A federal judge approves a $115 million settlement between AIG shareholders and Mr. Greenberg and other defendants over alleged improper accounting. The settlement revolved around several alleged frauds, including the bid-rigging scandal and issues related to the Gen Re case.

JUNE 2013

The New York Court of Appeals refuses to dismiss the case, which has been taken up by Eric Schneiderman, who succeeded Mr. Cuomo as attorney general in 2011 after Mr. Cuomo was elected governor. The opinion stated: “We have no difficulty in concluding that ... there is evidence sufficient for trial that both Greenberg and Smith participated in a fraud.”

JULY 2013

Mr. Greenberg sues Mr. Spitzer for defamation, alleging that in media interviews in 2012 the former governor asserted that AIG was “led by a CEO whose accounting was fraudulent” and made other defamatory remarks.

JUNE 2015

After several other court motions surrounding the case, a state appeals court again allows the case to proceed to New York’s highest court. The court had ruled that Mr. Schneiderman could pursue his bid to ban Mr. Greenberg from the securities industry, impose an officer and director ban, and recoup bonuses. Monetary damages in the case of up to $6 billion were dropped after the shareholder lawsuit settlement in 2013.

JUNE 2016

The New York Court of Appeals rules that the case must proceed to trial. The trial begins in September. Mr. Greenberg testifies for several days, but the trial was suspended midway as both parties agreed to mediation overseen by Kenneth Feinberg. 

FEBRUARY 2017

Mr. Schneiderman announces that the case is settled, with Mr. Greenberg and Mr. Smith admitting that they approved the Gen Re and Capco transactions. Mr. Greenberg agrees to pay $9 million and Mr. Smith agrees to pay $900,000.