The Mightiest One Of All Takes A Fall

Spitzer spotlight on AIG finite re deals forces out industry titan Greenberg

I never really thought that the industry’s most powerful figure, Maurice Greenberg, would voluntarily relinquish control over American International Group, which he built into America’s highest-profile carrier on the world insurance stage.

However, once New York Attorney General Eliot Spitzer and other regulatory officials started seriously digging into finite reinsurance deals that might have been used to improperly boost AIG’s financial picture, Mr. Greenberg lost the grip he had held on the company for 37 years in a hurry. In March, he stepped down as CEO, then announced shortly thereafter that he would retire as chairman.

(Mr. Greenberg’s son, Jeff, had been driven out of the top spot at the world’s biggest brokerage, Marsh, last year by pressure from Mr. Spitzer following probes into bid-rigging and contingency fee abuse.)

The plot quickly thickened, as Mr. Greenberg invoked his Fifth Amendment right against self-incrimination when he appeared in April at Mr. Spitzer’s office for questioning about alleged accounting misdeeds. His lawyers said he had taken that step because AIG had denied him access to material he needed to respond, and because the attorney general’s office had not given Mr. Greenberg enough time to prepare.

Around that same time, AIG admitted “improper” accounting of finite re deals with General Re along with other bookkeeping problems, and in May said a correction could cut its book value by $2.7 billion. After a delay of over six months, AIG finally delivered its annual statutory filing to New York in late November.

Meanwhile, Mr. Spitzer filed a civil suit in May against AIG, Mr. Greenberg and other officers, alleging that the carrier “routinely and persistently resorted to deception and fraud” to trick investors and regulators. Mr. Spitzer continues to pursue a civil resolution with AIG, which he said is cooperating with his investigation. A settlement of some sort was expected by year’s end, perhaps after this story went to press.

As for Mr. Greenberg, just recently Mr. Spitzer’s office confirmed that the former AIG kingpin would not face criminal charges for the balance sheet probe–at least not from New York authorities. Federal law enforcement officials might yet consider filing criminal charges.

This scandal also touched another industry titan–Warren Buffett, chairman of Berkshire Hathaway, who was linked to the questionable finite re deals in a Wall Street Journal report. Mr. Buffett denied any such involvement, and the company insisted the connection was solely at the individual business-unit level with its General Re subsidiary.

Mr. Greenberg continued to clash with AIG after his departure. Confrontations ranged from control of personal effects and artwork, to a court battle over billions of dollars in company stock held by Starr International Company, controlled by Mr. Greenberg.

In the meantime, the 79-year-old Mr. Greenberg was replaced in March as AIG’s president and CEO by Martin Sullivan, a 50-year-old company veteran cited for his kinder, gentler style, but also hailed as a tough, hands-on manager.

Mr. Sullivan certainly has his hands full, overseeing the company’s earnings restatements, negotiations with Mr. Spitzer and confrontations with Mr. Greenberg, all while trying to restore AIG’s reputation and maintain its prominent market position.

After running AIG for 37 years, industry titan Maurice Greenberg stepped down as chairman and CEO after balance sheet probes by state and federal officials.

“It is a daunting task to step into the shoes of Hank Greenberg…We have an extremely strong business and our financial fundamentals remain intact.”

Martin J. Sullivan, after being appointed AIG’s new president and CEO in March