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Greenberg settlement ends high-profile but unique case

Posted On: Feb. 14, 2017 4:00 AM CST

Maurice "Hank" Greenberg

The legal wrangling that played out over 12 years and resulted in former American International Group Inc. chief Maurice R. Greenberg agreeing to pay $9 million to settle charges over an alleged reinsurance fraud is unlikely to have major implications for other corporate executives, say some experts.

Despite the highly public battle between Mr. Greenberg and successive New York attorneys general and the numerous motions, rulings and appeals it generated, the unique circumstances of the case likely mean its influence is limited.

However, New York authorities’ continued willingness to bring expansive prosecutions under the state’s securities laws should be a concern to executives in the state, one expert said.

New York Attorney General Eric T. Schneiderman announced the settlement of the case, which had accused Mr. Greenberg of orchestrating sham reinsurance transactions, last week. AIG’s former chief financial officer, Howard Smith, will also pay about $900,00 to settle the case, according to Mr. Schneiderman’s office.

The securities fraud suit was filed against Mr. Greenberg under the 1921 Martin Act, which gives the New York attorney general extraordinarily broad powers to investigate and combat securities fraud and does not require the proof of damages or intent of fraud.  

The case was originally filed by then-New York Attorney General Eliot Spitzer, who went on to become governor of New York and resigned in disgrace after a prostitution scandal.  Mr. Spitzer is credited with expanding the number of Martin Act prosecutions to target alleged Wall Street fraud. After years of delay, the case went to trial in September but proceedings were halted mid-trial and Kenneth Feinberg was appointed as a mediator.

“It’s an ongoing circumstance that’s of long standing,” said Douglas Widin, counsel at Reed Smith L.L.P. in Philadelphia of the case, but “I don’t know that it necessarily has implications for other executives and other circumstances.”

“This is a unique case involving a unique individual and a unique set of circumstances, and you can’t necessarily take any of this and extrapolate it into other scenarios,” he said.

Stephen P. Younger, a partner with Patterson, Belknap, Webb & Tyler L.L.P. in New York, agreed the case was unique and involved a defendant who had “ample resources to defend against the attorney general’s office and had the resilience to persevere through many rounds of litigation. As a result, it’s difficult to see this case as being a precedent for future Martin Act prosecutions,” he said.

“I think this is a good example of regulators making allegations with very high dollars attached to the allegations, but then resolving them after the headlines have faded from people’s memories for relatively low dollars,” said Stephen Weisbrod, a partner at Weisbrod, Matteis & Copley P.L.L.C. in Washington.

Mr. Schneiderman dropped a $6 billion damages claim after a class action settlement over the alleged accounting fraud won court approval in 2013. Mr. Greenberg and other defendants paid $115 million to shareholders in that agreement.

But the threat of Martin Act prosecutions in general should be a concern for executives, said Kevin LaCroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C. in Beachwood, Ohio. “The state made it clear they weren’t going to let go” pursuing Mr. Greenberg and at the end “he had to pay a substantial amount of money,” he said.

“That’s a concern to any executive subject to New York regulatory authorities,”  and clearly, “they’re going to use the Martin Act when they deem it appropriate,” he said.  

Marc J. Zucker, a partner with Weir & Partners L.L.P. in Philadelphia, said the settlement “is a tribute to Ken Feinberg’s hard work as mediator and a sign that intractable disputes can be resolved through mediation in ways that litigation cannot solve.”