May 29 (Bloomberg) -- Maurice “Hank” Greenberg, the former chairman of American International Group Inc., lost a bid to throw out the New York attorney general’s 2005 lawsuit over alleged sham transactions intended to inflate the insurer’s financial health.
The state claims Greenberg, 89, and former AIG Chief Financial Officer Howard Smith bear responsibility for sham transactions with General Reinsurance Corp. in 2000 and 2001 that inflated AIG’s loss reserves by $500 million. Former Attorney General Eliot Spitzer’s pursuit of the case forced Greenberg to step down from AIG in 2005 after he spent four decades building the company into the world’s largest insurer.
Manhattan Supreme Court Justice Charles Ramos ruled yesterday that the case can proceed to trial.
“This action has been pending for eight years, meandering through a series of seemingly never-ending motions and appeals,” Ramos said in his decision. “The determination of the issues remaining in this action must be tried.”
Greenberg had argued that the lawsuit was fatally flawed after a court approved the $115 million settlement of a shareholder class-action lawsuit against Smith and him. After that settlement, the state attorney general’s office dropped a claim for damages. Greenberg and Smith had sought a ruling that the case against them should be dismissed because the state’s case had changed too much.
New York Attorney General Eric Schneiderman is still seeking to have the men barred from participating in the securities industry or serving as directors or officers of a public company.
“We look forward to moving toward a trial that will finally offer the opportunity to hold Mr. Greenberg accountable for his alleged role in a massive fraud,” Matt Mittenthal, a spokesman for Schneiderman, said yesterday in a statement.
David Boies, a lawyer for Greenberg, and Vincent Sama, a lawyer for Smith, said they plan to appeal the ruling.
Greenberg stepped down as CEO of AIG, which he had led since 1967, in March 2005, the same month the New York-based insurer said the transaction with Gen Re was improper. AIG restated its earnings, lowering them by $3.4 billion, and paid $1.6 billion to settle claims by regulators. Spitzer sued Greenberg and Smith two months later.
The case is State of New York v. Greenberg, 401720-2005, New York State Supreme Court, New York County (Manhattan).
--With assistance from Chris Dolmetsch in New York State Supreme Court in Manhattan.