Wednesday, insurer American International Group, Inc. (AIG) said it has reached a settlement with its former Chairman Maurice Greenberg related to various long-standing legal issues. AIG entered into a Memorandum of Understanding with Greenberg, its former chief financial officer Howard Smith, as well as two companies controlled by Greenberg, C.V. Starr & Co. Inc. and Starr International Co., Inc. that would put an end all disputes amongst them.
As per terms of the Memorandum of Understanding, the parties have agreed to release each other from all claims, including any claims by Greenberg and Smith against AIG for indemnification of future legal fees and expenses or settlement costs.
The settlement provides AIG would pay a maximum of $150 million to Greenberg and Smith as reimbursement toward legal fees and expenses incurred by them in connection with indemnifiable civil matters.
The New York-based insurance giant said that it would return to Greenberg the properties including certain photographs, a Persian rug and other materials of a personal nature that are not a part of AIG's business records.
In addition, AIG will permit Greenberg reasonable access to, and/or copies of, archival materials in AIG's possession necessary to write his memoirs, including without limitation trip reports, memoranda, photographs and other corporate records created while he was an officer or director of AIG or its predecessors.
AIG also agreed not to issue any public statement, or to cause the issuance of any public statement, disparaging any of the Starr Parties; and the Starr Parties agree not to issue any public statement, or to cause the issuance of any public statement, disparaging any of the AIG Parties. The Parties agree that this provision shall not limit the position any of the Parties may take in any pending or future litigation.
Commenting on the agreement, AIG's chief executive officer, Robert Benmosche said, "We are pleased that we have resolved our differences. The resolution of these long-running disputes will remove a significant distraction and expense and allow AIG to better focus its efforts on paying back taxpayers and restoring the value of our franchise for the benefit of all our stakeholders."
Both AIG and its former executives sued each other for various causes. Among the specific charges levied against the two executives were allegations that they were responsible for sham reinsurance transactions that indicated that the company increased its general loss reserves and a "purported sale of "tax exempt municipal bonds owned by AIG's subsidiaries to trusts that AIG controlled in order to improperly recognize realized capital gains."
In March 2009, Greenberg sued AIG for causing him purchase AIG shares in his deferred compensation profit participation plan at an inflated value.
Greenberg served at the top of AIG for 38 years before being ousted by the board in 2005 during an investigation by then New York Attorney General Elliot Spitzer into whether or not the company was taking part in reinsurance, the process of selling insurance to insurers. Greenberg has been involved in legal battles with the New York Attorney General's Office since then.
Earlier on August 2009, the Securities and Exchange Commission charged Greenberg and Smith for improper accounting transactions that inflated the company's financial results between 2000 and 2005.
The SEC's charges alleged that Greenberg and Smith were responsible for material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets, even though the company was facing financial difficulty under Greenberg.
AIG had previously been charged with securities fraud and improper accounting in 2006, settling the charges by paying a disgorgement of $700 million and a penalty of $100 million.
Greenberg agreed to pay disgorgement and penalties totaling $15 million to settle the charges. Smith agreed to pay $1.5 million and was also suspended from appearing or practicing before the SEC as an accountant for five years. Neither have denied, nor confirmed that they are guilty of the charges against them.
The SEC's charges also alleged that Greenberg knew about the effects that the improper transactions would have on AIG's results and that he and Smith were responsible for presenting false and misleading statements in AIG's quarterly reports in 2002 and 2003.
AIG closed Wednesday's regular trading session at $34.68, down $0.32 or 0.91% on a volume of 4.26 million shares. However, the stock gained $0.06 or 0.17%, and traded at $34.74 in the after hours.
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