NEW YORK (Reuters) – New York's attorney general should not be allowed to derail a long-delayed $115 million settlement between American International Group Inc shareholders and the insurer's former chief executive, lawyers for the shareholders argued.
Attorney General Eric Schneiderman last month urged U.S. District Judge Deborah Batts in Manhattan to reject the accord, reached in 2009, saying an expert for shareholders had made a math error that caused the payout to be far too low.
But in a filing late Tuesday in federal court in Manhattan, lawyers for the shareholders said the error had "no significant effect" on the payout, which they said remains one of the largest settlements of its kind.
They also said it was "entirely speculative" to expect the shareholders to fare better in new talks with former AIG CEO Maurice "Hank" Greenberg, former Chief Financial Officer Howard Smith, and Greenberg's companies, C.V. Starr & Co and Starr International Co.
"The court should not put the $115 million Starr settlement at risk so that the New York attorney general can continue to pursue 'billions' of dollars from Greenberg and Smith," the lawyers said in the filing.
The $115 million settlement was intended to resolve claims over alleged improper accounting and other fraudulent practices at New York-based AIG dating to 1999.
James Freedland, a spokesman for Schneiderman, did not immediately respond on Wednesday to a request for comment.
The three-year delay in approving the settlement is unusually long for a shareholder class-action case.
Schneiderman said approval of the accord would effectively end his seven-year-old civil fraud case against Greenberg and Smith. The case was earlier handled by Schneiderman predecessors Eliot Spitzer and Andrew Cuomo; it was brought under a state law known as the Martin Act,
The defendants have gone to New York's highest state court, the Court of Appeals, to appeal Schneiderman's use of that 91-year-old law. Briefs are due by late November.
GEN RE TRANSACTIONS
At issue is a 2000 transaction with General Re Corp, a unit of Warren Buffett's Berkshire Hathaway Inc , which various government investigators have said allowed AIG to inflate loss reserves by $500 million without transferring risk.
Schneiderman argued that a math error by John Finnerty, an expert hired by the plaintiffs, caused this transaction to get no weight in the calculation of damages.
The attorney general said his own expert, Jane Nettesheim, calculated as much as $6.56 billion of damages over three days in early 2005 ti ed to ne ws about the Gen Re transaction and other events affecting AIG, including subpoenas and accounting issues.
All sides should be "sent back to the bargaining table to 'start fresh,'" Schneiderman said.
In response, the shareholders' lawyers said they had hired Finnerty solely in connection with a motion for class certification, and that they relied only "tangentially" on his work in settlement talks.
They also said reopening talks could let Greenberg introduce subsequent legal developments that could lead to a lower payout, and that waiting for Schneiderman to finish his lawsuit could take years.
Lawyers for Greenberg, Smith and the Starr entities also urged approval of the $115 million settlement.
OTHER SETTLEMENTS
The accord is separate from a $725 million settlement between shareholders and AIG itself, which Batts approved in February.
Greenberg led AIG for nearly four decades before he was ousted in 2005. The following year, AIG paid $1.64 billion to settle federal and state probes into its business practices.
In June, five former General Re and AIG executive reached deferred prosecution agreements with the government to end criminal cases against them, after their 2008 fraud convictions had been overturned. Buffett was not accused of wrongdoing.
The case is In re American International Group Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 04-08141.
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