Is This Hank's Last Stand?

There is something unseemly about the face-off in U.S. District Court between Maurice “Hank” Greenberg and AIG, the company he led for so many years, over billions in stock supposedly set aside as incentive compensation for employees. In a sense, this is the final battle in an ugly divorce–one I am not certain the indomitable Mr. G can win.

It's amazing just to see Mr. Greenberg on the witness stand, after he apparently dodged the bullet in investigations by Eliot Spitzer and the SEC, as well as a prosecution of AIG and General Reinsurance figures in Connecticut over the use of bogus finite reinsurance deals to cook AIG's books and artificially prop up its balance sheet.

People actually went to jail for that white collar crime–including Gen Re's former CEO, Ron Ferguson. Prosecutors in the case cited Mr. Greenberg as an unindicted co-conspirator. The presiding judge said the government's evidence was sufficient for a jury to conclude that the conspiracy began with a phone call from none other than Mr. Greenberg.

While exposure of the scam forced a massive restatement of AIG's earnings and prompted his ouster as chair and CEO in 2005, Mr. Greenberg has been getting along just fine, thank you–unless you consider the fact that his personal wealth has plummeted along with the value of AIG's stock.

Not only has Mr. Greenberg settled in as head of C.V. Starr, but he has returned with a vengeance from his self-imposed exile in the media wilderness, reasserting his iconic status by appearing regularly on cable news programs and on Charlie Rose's PBS talk show to assert how AIG never would have gone into the toilet had he still been in charge.

However, this all-too-public legal battle of the titans with AIG over a trust fund launched to compensate high-performers could turn out to be Hank's Waterloo, IMHO. I do not envy the jury its task of sorting through this debacle, as the legalities are no doubt vague enough to drive rational people to distraction.

Indeed, no matter how this case is decided, the only point that is clear is that Mr. Greenberg and AIG devised a horrible system of rewarding their best workers. There was no reason for creating such a Byzantine structure to perform such a simple task.

Be that as it may, from the early testimony of Mr. Greenberg himself, it seems absolutely certain what this AIG stock fund was intended to do–benefit AIG workers. However, the question is who controls the stock now, and that is anything but clear.

Will the jury find in favor of Hank? It very well could, especially since AIG is understandably unpopular among the civilian population these days. Even though the judge has banned any discussion of AIG's recent financial woes as irrelevant to the legal issues at hand, the jurors would have to have been living in a cave (without cable TV) to not know that AIG is the poster child of the bailout generation.

Will Mr. Greenberg–a small man in his mid-80s being challenged by big, bad AIG–earn the jury's sympathy? Who can say? After all, O.J. was declared innocent, so anything in a jury room is possible.

But if the jury is swayed by the timeline presented by AIG's attorney–showing the way he pitched the fund to employees in “motivational” gatherings and correspondence, the massive turnover in board members orchestrated right after his ouster from his old job, and the physical transfer of stock from a New York bank to the friendlier confines of Bermuda–this may start to look like a heist to the Average Joe and Jane, and the jury might decide to act accordingly.

The judge–who has reserved judgment over breach-of-trust allegations for himself–might lean the same way.

If Mr. Greenberg should lose this battle, might that discredit him once and for all in the eyes of the press and public? I would think so. I cannot imagine how he could recover his already tattered reputation from such a death blow.

What do you folks think?