Maurice “Hank” Greenberg, the former chief executive of American International Group (AIG), is admitting to fraud under a settlement of a long-running lawsuit against the insurance giant filed by New York prosecutors.
The agreement, announced Friday, calls for Greenberg to pay a total of $9 million to resolve the case. Howard Smith, ex-chief financial officer at the insurance giant, must pay $900,000.
The suit, which was initially filed by former New York Attorney General Eliot Spitzer in 2005, stems from AIG’s earlier admission that it participated in sham transactions between 2000 and 2004. Two of these were deals with General Reinsurance Company and Capco, an offshore entity, and were intended to make AIG’s reserves look healthier than they were by about $500 million.
“Today’s agreement settles the indisputable fact that Mr. Greenberg has denied for twelve years: that Mr. Greenberg orchestrated two transactions that fundamentally misrepresented AIG’s finances,” New York Attorney General Eric Schneiderman said in a statement. “After over a decade of delays, deflections and denials by Mr. Greenberg, we are pleased that Mr. Greenberg has finally admitted to his role in these fraudulent transactions and will personally pay $9 million to the State of New York.”
In May 2005, AIG restated its earnings for the prior four years, leading it to lower its profits by nearly $4 billion. The company also admitted to “improper or inappropriate transactions” and accounting irregularities, as well as intending to deceive regulators. Shortly after, the Department of Justice, the Securities and Exchange Commission and the New York Attorney General’s office each sued the company.
AIG settled in 2006 for $1.6 billion. But Greenberg and Smith did not, and maintained they were not responsible for the deals.
“The Gen Re transaction was done for the purpose of increasing AIG’s loss reserves, and the Capco transaction was done for the purpose of converting underwriting losses into investment losses,” Greenberg, 91, said in a statement on Friday. “I knew these facts at the time that I initiated, participated in and approved these two transactions.”
Schneiderman took the case against Greenberg and Smith to trial in September 2015. At that point, having testified to their role, the former executives admitted to being personally involved in and approving the fraudulent deals.
As part of Friday’s settlement, Greenberg and Smith agreed to forfeit $9.9 million they received as performance bonuses from 2001 through 2004. This settlement, combined with Greenberg’s previous settlement with the SEC, means he will give up “virtually every dollar paid to him in bonuses” while the fraud was ongoing, Schneiderman said.