Greenberg to appeal ruling on sham reinsurance case

NEW YORK—Former American International Group Inc. Chairman and CEO Maurice R. Greenberg plans to appeal a New York justice's decision holding him liable for damages arising from one of two allegedly fraudulent reinsurance transactions, Mr. Greenberg's attorney said Friday.

New York Supreme Court Justice Charles E. Ramos held Thursday that Mr. Greenberg and former AIG Chief Financial Officer Howard Smith could be held liable for damages arising from the alleged improper use of an offshore vehicle—Barbados-based CAPCO Reinsurance Co. Ltd.—as a shell corporation to take on auto warranty losses that AIG generated in the mid-1990s as way to remove them from the insurer's books.

But in his Thursday ruling, Justice Ramos refused to grant summary judgment for the New York attorney general's office on the larger count that Messrs. Greenberg and Smith used a sham reinsurance deal between AIG and Berkshire Hathaway Inc.'s General Re Corp. to hide AIG's losses and inflate its reserves in an effort to mislead Wall Street stock analysts.

In early 2008, federal prosecutors obtained five convictions against four former Gen Re executives—including former Gen Re CEO Ronald Ferguson and former AIG Vp of Reinsurance Christian Milton—in the sham reinsurance case. The prosecution alleged that the sham deal increased AIG's reserves by about $500 million without any risk being transferred.

Attorneys for Messrs. Greenberg and Smith stressed that the judge refused to grant summary judgment for the state regarding the Gen Re transaction.

"Justice Ramos denied the New York attorney general's motion for summary judgment on the Gen Re transaction, which constitutes the bulk” of the attorney general's claims, Lee Wolosky, a partner in New York law firm Boies, Schiller & Flexner L.L.P. who represents Mr. Greenberg, said in a statement.

He called the CAPCO transaction “not material, constituting less than 1% of AIG's net income during pertinent periods.”

Mr. Wolosky said, “Mr. Greenberg expects to prevail on his appeal of the court's decision granting summary judgment on liability on this single transaction.”

Vincent Sama, a partner with Winston & Strawn L.L.P. in New York who represents Mr. Smith, issued a statement saying that Justice Ramos “properly denied the New York attorney general's motion for partial summary judgment with respect to the Gen Re transaction.” He noted that the attorney general's office “had repeatedly called” that transaction “the ‘guts' of its case.”

He said Mr. Smith would appeal.

The attorney general's office did not return a call for comment.