AIG and Maurice “Hank” Greenberg, in their latest legal fight, seem both to
be hoping that they can convince a judge and a jury that the ends justify
the means, and perhaps also that they are the nicer of the two parties.
The insurance company and its former CEO head to court on Monday in
a tussle over who should be allowed to keep hundreds of millions of shares
of AIG that Greenberg and a company he controls, Starr International, took
when he left his former employer. AIG says those shares and the more than $4
billion in profits Starr International has reaped from past stock sales are
the property of the insurer and its employees.
But rather than fight over the merits of the case, both sides have spent the
past few weeks arguing that they should win because what they plan to do
with the money is more worthy than what the other side has planned. “You do
see this sort of thing in cases that involve people with dubious reputations
in the public eye,” says James Cox, a law professor at Duke University. “And
I do think a desire to improve his public reputation is what is driving
Greenberg in this case.”
Last week, AIG for the first time said that if it wins it plans to
use the money to pay back taxpayers . Previously, the company had suggested
that the missing shares should be used to compensate employees.
Greenberg’s Starr, for its part, has recently been beefing up its
credentials as a charity. In the past few weeks, Starr has given out $1.5
million to antihunger and homeless causes in the New York City area. Starr
is owned by a nonprofit but it
only made its first charitable donation in 2006.
The complicated case stems from the departure of Greenberg in 2005,
when he was ousted from AIG, a company he ran for 37 years, amid an
accounting scandal. While the case gets at the wacky bonuses and
compensation structure present at AIG for years, the facts of it predates the
mortgage mess and the company’s current troubles.
Here, in a nutshell, is the source of the current disagreement. Back in
2005, Greenberg was the head of both AIG and Starr International, a private
insurance company whose main asset was nearly 300 million shares of AIG.
For years, Starr had used that stock to dole out retention bonuses to AIG
executives. When AIG booted Greenberg, he seized control of Starr and its
AIG shares. Greenberg says Starr is a separate company that was set up to
use its shares to benefit a charitable trust, and insists it can do what it
wants with the shares. AIG says Starr was given those shares with the
understanding that they would eventually be returned to AIG and its
employees.
The stakes in the case have only increased now that AIG’s fortunes have
plummeted in the financial crisis. AIG’s market capitalization has plunged
95% in the past year to a recent $4.3 billion. That means, should AIG be
able to recapture it, the trove of cash and assets sitting at Starr, which
has collected $4 billion from selling AIG shares in the past few years,
could end up being one of AIG most valuable assets. That has made the
mudslinging all the more intense.
A spokesperson for AIG says the idea that Starr is a charity is a sham, noting that Greenberg’s company in all the years of its existence has donated
less than 0.01% of its worth. “Only after AIG brought this action did SICO
[Starr International] suddenly and cynically show charitable tendencies,”
says the spokesman. “Mr. Greenberg is dressing up SICO in a veneer of
philanthropy just like a defendant who buys a new suit for the courtroom.”
Greenberg and Starr say that AIG should not be believed when it says it is pursuing
the lawsuit on behalf of shareholders or taxpayers. In a recent e-mail to a
blogger, a Starr spokesperson wrote, “By its own admission, AIG is
prosecuting these claims for only one purpose: To add hundreds of millions
of dollars to a bonus pool available to AIG’s top 700 executives.”
Both sides say they have been consistent in their reasons for pursuing the
case, and that the other side is mischaracterizing their intentions. A
spokesman for AIG says, “We have not changed a whit our determination to
restore to the trust that which was wrongfully taken from it.”
In this whole disagreement, of course, one thing is certain: There are
likely to be some fireworks when this case begins on Monday.
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