Greenberg, AIG Face Off In Court Over Ownership Of Billions In Stock

New York City

American International Group squared off in federal court last week with its former top executive, Maurice Greenberg, in a battle over ownership of a block of AIG stock shares originally intended to serve as incentive compensation for employees.

The jury in U.S. District Court in Manhattan–in a civil trial presided over by Judge Jed S. Rahoff–will have to decide who has ownership rights to stock possessed by Starr International Company, which is headed by Mr. Greenberg, where he landed after being ousted as AIG's chair and CEO.

AIG is suing SICO for some 290 million deferred compensation shares it contends were being held in trust for AIG employees. AIG put the value of the shares in the possession of Starr at $4.3 billion as of 2005, when Mr. Greenberg left the firm.

AIG is seeking return of the shares and payment of damages, along with replacing SICO board members with a majority of members representing AIG.

The jury hearing the case will decide the stock ownership question, but only act in an advisory role on breach-of-trust allegations. Judge Rakoff ruled that he will make the final decision on that matter.

A representative for AIG has said that if the company prevails, proceeds from the trial would be used repay the company's debt to the U.S. government. AIG secured tens of billions in bailout funds last year after nearly being bankrupted by credit default swaps.

Mr. Greenberg denied on the witness stand that there were restrictions on the AIG stock he is accused of misappropriating.

Mr. Greenberg sparred with AIG lead attorney Theodore Wells over the intended owner of the trust, which was set up to incentivize employee performance.

Mr. Wells, through his questions, sought to show there was a breach of trust with SICO, which awarded the incentive bonus packages of stock to select AIG employees through a trust set up for that purpose.

Using commitment letters to shareholders and speeches given by Mr. Greenberg while he was heading up AIG, Mr. Wells pressed him to admit that SICO was created exclusively for AIG employees.

“It was an incentive to keep AIG going,” said Mr. Wells, pointing to language attributed to Mr. Greenberg referring to how awards would be made to a select group of AIG employees who excelled in their jobs.

Mr. Greenberg refuted Mr. Wells' interpretation, saying while it was the hope of SICO's directors they would continue to provide bonuses to AIG employees for a long time, the choice of who benefited from the plan was the choice of Starr directors.

“You are talking about building a company, not its destruction,” said Mr. Greenberg. “If AIG maintained growth, then [the trust] would have continued to support AIG. If not, then it could take other action.”

It was up to SICO's directors to determine where investments would go, according to Mr. Greenberg, who said if SICO did not see continued growth at AIG, they were free to make a change.

Turning to the new direction SICO took in 2005–after the departure of Mr. Greenberg from AIG in the midst of an accounting scandal over the use of finite reinsurance to bolster the company's balance sheet–Mr. Wells suggested the course change took place because of his leaving and not due to AIG's performance.

Mr. Greenberg countered, noting that he was only one of 11 voting directors of the trust who decided to make a change.

“They felt they lost control and lost confidence in AIG,” said Mr. Greenberg of the decision to change. The SICO directors “did not know what was going to happen in the future, and they voted their conscience.”

Mr. Wells reviewed several speeches Mr. Greenberg gave employees who received bonuses under the plan. He noted that in the speeches, Mr. Greenberg clearly states that the SICO bonus payments were established to incentivize AIG employees.

While he conceded the program was intended as incentives for AIG workers, Mr. Greenberg explained that he did not go into the legal details of the plan during what he described as motivational speeches. He also noted that when reviewing the history of the program for his listeners, he said it was a unique program meant to reward employees instead of the few SICO shareholders who held AIG stock.

The program was also created to protect Starr and AIG from a hostile takeover in its early years, said Mr. Greenberg–designed to work as an incentive program that, if AIG was “mishandled,” would either be converted to a charitable trust or liquidated.

In his second day of testimony, Mr. Greenberg admitted his ire over being forced out as chief executive under persistent questioning from AIG's attorney.

“Yes, I was angry,” admitted Mr. Greenberg, exhibiting a rare sign of annoyance during an otherwise controlled series of responses to persistent questions by Mr. Wells, who methodically sought to demonstrate that Mr. Greenberg was motivated to deny AIG its bonus compensation program because of his reaction at being removed from his posts in 2005 in the accounting scandal.

Mr. Greenberg rebuffed Mr. Wells' allegations, calmly and sometimes at great length, laying out how the decision was made by the 11 voting directors of SICO.

However, Mr. Wells laid out a time line of events on the severing of the relationship between SICO and AIG that appeared to show changes were motivated by Mr. Greenberg's anger over his dismissal.

Mr. Wells presented a series of documents that showed changes were made in the make-up of the directors of SICO, as well as the language covering the structure and purpose of the program corresponding to Mr. Greenberg's ouster.

On the day Mr. Greenberg left as AIG's chief executive, a meeting was called of the SICO voting shareholders, which included Mr. Greenberg, where nine SICO directors working for AIG were removed from the board–whichh included Martin Sullivan, who had been named to replace Mr. Greenberg. Members of the board were later replaced with retired SICO representatives.

“In 2000, you had made a statement that these were outstanding executives,” said Mr. Wells, referring to the nine dismissed directors. “Prior to the date [of Mr. Greenberg leaving AIG], you did not consider removing them from the SICO board?”

Mr. Greenberg said that was the case, explaining the consideration was made after the events of that day because of what he termed a “hostile” relationship that had developed between AIG and SICO. He also said that he understood AIG sought to sever ties with SICO.

That hostility, he said, also led to the physical movement of AIG stock now in dispute from J.P. Morgan Chase in New York to a Bermuda account. That action was taken, according to Mr. Greenberg, because of fear AIG might try to take the shares from SICO if it remained in the United States.

In speeches and documents in the years prior to Mr. Greenberg's departure from AIG, spanning the 1980s to 2000, he told the select group of AIG, SICO and C.V. Starr employees that the trust program was intended as a performance incentive for them to stay with the company and remain productive employees, and never discussed the fact that the ultimate goal of the program was charitable, although Mr. Greenberg insisted in his testimony that was the case.

Mr. Wells presented documents indicating SICO took action after Mr. Greenberg's departure from AIG to amend the understanding of the SICO trust that its ultimate goal was for charitable use and that any prior language should be rescinded.

Mr. Greenberg said the actions were taken after a discussion by the SICO board and drawn up by the attorneys, although he could not recall who specifically made the suggestions. He called the action a “reaffirmation” of the intent of the founding members of SICO, which included himself.