AIG Sues Greenberg For $1 Billion

A day after American International Group's former chairman, Maurice Greenberg, filed papers accusing AIG's new management of costly blunders in a financial restatement, the company filed a $1 billion-plus lawsuit against him.

Mr. Greenberg's charges were made Tuesday in defending against a New York business fraud suit filed by that state's attorney general. AIG's new action was filed yesterday in Delaware Court of Chancery.

The AIG suit accused Mr. Greenberg and the company's former chief financial officer, Howard Smith, of improper moves that resulted in, among other things:

o The financial restatement.

o An "expensive" internal investigation.

o Payment of $800 million to settle a Securities and Exchange Commission civil action.

o $25 million to resolve U.S. Department of Justice claims.

o $100 million to settle claims by New York authorities.

According to AIG--a corporation registered in Delaware, with its headquarters in New York--Mr. Greenberg either caused AIG to enter into the transactions that led to misstatements and subsequent financial restatement, "or knowingly participated in them."

The New York Attorney General's Office under Eliot Spitzer (now the state's governor) subpoenaed Mr. Greenberg and Mr. Smith on Feb. 11, 2005, to testify about a General Reinsurance transaction that AIG said was booked as reserves, but did not entail sufficient risk transfer to be accounted for as insurance.

Both Mr. Greenberg and Mr. Smith invoked their Fifth Amendment right not to testify, and by March 28, 2005, Mr. Greenberg had been forced to resign as chairman and CEO, while Mr. Smith was terminated

The two breached their fiduciary duty and acted in bad faith, causing damages to AIG--which, the suit said, also included harm to the firm's reputation, loss of business, increased costs of capital and legal fees.

Mr. Greenberg, in his New York Supreme Court filing, criticized the 2005 financial restatement that reduced AIG's net income between 2000 and 2004 by $3.92 billion, while trimming shareholder equity as of Dec. 31, 2004, by $2.26 billion.

According to Mr. Greenberg's legal memo and motion, he and Mr. Smith are only alleged to have involvement in four of 30 accounting changes involved in the restatement.

Mr. Greenberg's papers said he wants to depose AIG officials to show that, rather than any of those four items affecting the price of the stock, that any drop or inflation "resulted from elements of the [financial] restatement that were included therein by current AIG management but were unrelated to the four transactions..."

AIG's restatement and his own ouster by the company followed the threat of a criminal prosecution by then Attorney General Eliot Spitzer, according to Mr. Greenberg's papers.

According to his filing, the restatement reduced billions of dollars in AIG's net income and shareholder's equity "as a result of retroactive accounting changes made either erroneously or unnecessarily by AIG."

The papers contend some AIG management moves were "wrong under applicable accounting rules," and some retroactive reductions "were wholly unnecessary." Items mentioned included asbestos reserve estimate changes and treatment of AIG's life settlements program.

In a statement concerning its action against Mr. Greenberg AIG said, that it decided to sue after special litigation committee conducted an in-depth review and the company board "determined that it would be in the best interests of AIG and its shareholders for AIG to pursue these claims against Messrs. Greenberg and Smith, rather than have them controlled by the plaintiffs bar."