Greenberg Sues AIG Over $2B In Stock Losses

American International Group's former chairman and chief executive officer, Maurice Greenberg, is suing his old company, charging that excessive speculation in risky derivatives and lack of disclosure after he left caused him to lose money in stock purchased on his behalf in deferred compensation plans.

On CNBC yesterday, Mr. Greenberg said his losses totaled $2 billion. "I was hurt very badly," he said.

According to the suit, the stock was awarded to him by Starr International Company--formerly an exclusive managing general agent for AIG. The two firms split apart soon after Mr. Greenberg departed in 2005, as a part of a settlement between the companies.

Mr. Greenberg, who owns stock in both entities, is now chairman and CEO of C.V. Starr, which brokers commercial insurance for a number of carriers.

Mr. Greenberg said in the lawsuit that he wants to recover the difference between the price at which he bought the shares and the "price of the true and fair value of these shares had defendants not engaged in material misrepresentations and omissions."

He charged in the suit that the rapid run-up in AIG's involvement with risky credit default swaps after he left had "artificially inflated the price of AIG shares," and also caused Mr. Greenberg to pay excessive income tax on the AIG shares he acquired.

Peter Tulupman, a spokesman for AIG, responded that: "We believe the lawsuit is without merit and we will vigorously defend against it."

According to the suit, between March 2005 and the summer of 2008, AIG was a leading issuer of credit default swaps, and that most of the increase in purchases in such swaps after Mr. Greenberg left were those that insured purchasers against loss of investment in collateralized debt obligations backed by subprime mortgages.

According to the suit, by Dec. 31, 2007, swaps issued by AIG hedged the risk of default on at least $527 billion in debt, including debt securities backed by subprime mortgages.

"AIG made repeated statements touting its sophisticated and conservative strategies in limiting any foreseeable losses arising from its CDS portfolio," the suit said.

Mr. Greenberg also cited comments about AIG's swap portfolio by Joseph Cassano, former head of the London-based AIG Financial Products division, in August 2007, during the company's second quarter earnings conference call with analysts.

"It is hard for us...without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of these transactions," Mr. Cassano reportedly said.