AIG Shrugs Off A&A Dispute

AIG Shrugs Off A&A Dispute McConkey charged Zarb with lying about sale to Aon

Despite being under intense regulatory scrutiny, American International Group expressed no concern about Non-Executive Chairman Frank Zarbs involvement in a civil fraud verdict against an insurance brokerage he previously headed, a representative for the carrier said.

New York Attorney General Eliot Spitzers office, which is scrutinizing AIGs conduct, would not comment on the case.

Steven A. Rautenberg, vice president of communications, said AIGs directors were aware of the case when they elected Mr. Zarb to the board. He said it was a 10-year-old case involving one employee, and Mr. Zarb was not a defendant.

Involved in the case were allegations that Mr. Zarb, while chief executive officer of the Alexander & Alexander insurance brokerage firm, lied repeatedly about the firms pending sale to Aon.

The suit was brought by former New York Giants football star Phil McConkey, who charged that Mr. Zarb convinced him to leave a lucrative post at the Ross & Company brokerage to join A&A by denying he intended to sell the firm. Shortly after Aon bought A&A, Mr. McConkey was terminated.

“By lying to hundreds of employees, clients and ultimately shareholders, [Mr.] Zarb induced them to rely on false information in making decisions affecting their careers, businesses, and stock purchases and sales,” according to a brief filed with the New Jersey Supreme Court by Mr. McConkeys attorney, Neil Mullin of the Smith Mullin law firm.

Mr. Zarb did not respond to requests for comment.

The states high court in 2003 upheld the verdict, which included $5 million in punitive damages against the company.

While Mr. Zarb was removed as a defendant before the case went to trial in Essex County Superior Court, the jury was not made aware of that fact and, according to Mr. Mullin, it was Mr. Zarbs actions that were the basis of the suit and subsequent verdict. As part of Mr. Zarbs contract with A&A, he was entitled to $23 million in severance if the company was taken overan amount he collected after the Aon deal was concluded.

Among the evidence produced at trial was A&As Dec. 16, 1996 proxy filing signed by Mr. Zarb, which said that from January to May 1996, Aon Chairman Patrick G. Ryan and Mr. Zarb met to discuss a possible merger and sale, continuing discussions that began in 1994. Mr. McConkey joined the firm in May 1996.

In his testimony, Mr. McConkey said Mr. Zarb reassured him that in terms of any sale, A&A was “the predator, not the prey.”

According to Mr. Mullins brief, Mr. Zarb used Mr. McConkey to assure hundreds of A&A employees and customers that A&A had no intention of selling or merging the company.

The proxy statement revealed that before the deal went through there was extended haggling between then AIG CEO Maurice Greenberg and Mr. Ryan over how much Aon would have to pay AIG for shares of preferred stock it had bought when Mr. Zarb became CEO. Under the terms of AIGs $175 million stock purchase, it was entitled to $350 million if A&A was sold. AIG eventually agreed to take $317.5 million.

Mr. Greenberg left AIG last monthfirst as CEO, then as chairmanafter he came under scrutiny from Mr. Spitzers office concerning his involvement with suspected fraudulent offshore transactions that improved AIGs financial picture (see story, page 6). Mr. Zarb replaced him as non-executive chairman.

The attorney generals office did not respond to telephone and e-mail inquiries concerning whether it was aware of, or concerned about Mr. Zarbs role in the McConkey case.

Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.