Last Updated Jan 8, 2008 4:50 PM EST
Remember: this is the case that then-Attorney General Eliot Spitzer of the state of New York used to threaten the AIG board with criminal indictment, according to a leak to the Wall Street Journal, and force the ouster and character defamation of Greenberg. Full disclosure: in my role as editor in chief of Chief Executive magazine, I wrote an editorial in 2005 arguing that Spitzer should resign as attorney general because it was obvious he was using his powers as attorney general to win the gubernatorial race in New York, as evidenced by the AIG case, among others. I argued that he had a classic conflict of interest. Spitzer stonewalled me and went on to win the governor's seat.
So will Spitzer prevail in this case or not? The Journal says it will be tough for prosecutors to get convictions and I agree--because it's not at all clear that anyone really broke any law. Certainly they didn't violate U.S. law because the key transaction took place outside the United States and it's also not clear that the transaction was "fraud," as Spitzer alleged.
In brief, AIG had too many reserves on its balance sheet. It needed to adjust its "ratios," meaning the amount of reserves versus the amount of potential losses. So it bought the $500 million portfolio of workmen's compensation claims from General Re and paid a $5 million fee, all very routine in the obscure world of reinsurance. Many transactions of this nature took place and I suspect they are still taking place. Spitzer used his subpoena powers to get the details on this transaction and criminalize it. Then he intimidated lower-ranking executives into turning state's evidence for fear that Spitzer would have put them away for long prison sentences.
At the most extreme, AIG and Gen Re might be required to adjust their earnings and pay small civil fines. But why are prosecutors bringing criminal charges? It's all because of Eliot Spitzer and his huge political ambitions.
So if prosecutors can't win criminal convictions in this case, it's yet another piece of evidence that Spitzer used highly questionable tactics to further his dreams of higher office. His spectacular lack of success as governor of New York supports the view that he knew how to launch witch hunts, but he never really knew how to govern. That's why the world is watching this otherwise obscure trial.