I am writing in regard to mischaracterizations contained in your recent article on Maurice R. ("Hank") Greenberg–"Greenberg Sends Mixed Signals on Regulatory Reform"–in your Oct. 12, 2009, edition, page 7.

The article stated that in a recent speech, Mr. Greenberg "noted that AIG, under his leadership, had established enterprise risk management throughout the organization, but did not explain how that system after he left had failed to detect or deter the ill-advised credit default swaps in AIG's Financial Products unit that nearly bankrupted the company and prompted its ongoing federal bailout."

This reporting creates the impression that Mr. Greenberg was responsible for AIG's failure over three years after he left the company in March 2005.

In fact, massive losses at AIG in 2007 and 2008 resulted significantly from a shift in the way AIG Financial Products (AIGFP) did business in the years following Mr. Greenberg's retirement.

Prior to Mr. Greenberg's retirement from AIG in March 2005, AIG senior management closely monitored AIGFP and its risk portfolio. During this time, AIGFP was subject to numerous internal risk controls, including risk monitoring by several independent units of AIG, review of AIGFP transactions by outside auditors, consultants and internal auditors, and scrutiny by AIGFP's and AIG's Boards of Directors.

Every new type of transaction or any transaction of size, including most credit default swaps (CDS), had to pass review by AIG's Chief Credit Officer. In addition, AIG's Enterprise Risk Management structure signed off on most contracts issued by AIGFP and advised top management on risk concentration.

As of the end of 2004, AIGFP's credit default swap exposure was predominantly from a "corporate" CDS program (consisting of credit default protection written for European banks). The corporate CDS program was both successful and closely monitored, and AIGFP, to this day, has not suffered significant losses on that portfolio.

The risk controls that Mr. Greenberg put in place were reportedly weakened or removed after he left the company. For example, the weekly meetings that Mr. Greenberg and his team used to conduct to review all of AIG's investments and risks were eliminated. These meetings kept the CEO abreast of AIGFP's credit exposure.

In addition, AIG lost its "AAA" credit rating in spring 2005. At that point, it would have been logical for AIG's new management to have exited or reduced its business of writing credit default swaps.

Instead, according to several published reports, AIG drastically accelerated its credit default swap business for the remainder of 2005, and the quality of what AIG wrote protection for deteriorated. Moreover, it appears that the additional risk that AIG took on through these new credit default swaps was entirely or substantially unhedged.

What occurred after Mr. Greenberg's retirement was therefore a colossal failure of management, with devastating consequences for AIG stakeholders ranging from employees to pensioners, and the U.S. taxpayer.

Finally, your article refers to various legal matters related to Mr. Greenberg. It is important to note that Mr. Greenberg has never been charged personally with securities fraud.

In terms of the recent SEC settlement cited in the article, the only charge that the SEC made against Mr. Greenberg was a "control person" charge under Section 20(a) of the Exchange Act. Mr. Greenberg did not admit or deny this claim, although he believed this was an appropriate basis to resolve the SEC's investigations and put these issues behind him.

We ask that you clarify these issues for your readers.

Patrick Dorton
Spokesman for Maurice R. "Hank" Greenberg

Special Reports /

Greenberg Spokesman Responds To Story About Role In AIG Credit Default Swaps

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