AIG’s Greenberg spends almost quarter billion to clear his name – then takes the 5th

Maurice “Hank” Greenberg made AIG an indispensable company. When the board forced him out, he began a furious campaign to reclaim his good name. But no one foresaw how strange the last chapter of this tale would be.

Fortune magazine provides the background.

These are wrenching times for 83-year-old Hank Greenberg, former chairman and chief executive of American International Group. Four years ago he was one of the most powerful men in the world. He controlled a company with $800 billion in assets. U.S. Presidents, foreign heads of state, and intelligence chiefs sought his counsel. His foundations dispensed hundreds of millions of dollars each year to charities.

Today he is Maurice R. Greenberg, defendant…

The Fortune article is a lengthy but fascinating read – part biography and part histoy.  .  It’s also great reading as it describes the issue at the core of Greenberg’s legal woes.

[When the charges were announced against NY Governor Spritzer] Greenberg’s camp was already trying to process the news coming from a federal courtroom in Hartford, where five defendants had been on trial in a complex securities-fraud case. The defendants were former top executives from Gen Re and AIG. They had structured a phony reinsurance transaction to try to mask a problem of shrinking loss reserves at AIG, the issue also at the heart of Spitzer’s AIG probe. Greenberg wasn’t a defendant in the criminal case. And he wasn’t a witness. But he figured large in the proceedings. Prosecutors used two words to describe him: unindicted co-conspirator.

Prosecution witnesses told the jury that the fraudulent transaction started with an Oct. 31, 2000, phone call by Greenberg to Ron Ferguson, then CEO of Gen Re and one of the defendants in the case. They told the jury that Greenberg, in calling Ferguson, proposed fixing a shrinking loss-reserve problem with a phony reinsurance deal. The jury listened as the witness outlined the contours of the scheme: Gen Re would ostensibly buy $600 million in reinsurance coverage from AIG for a $500 million premium, creating the appearance of a $100 million risk. AIG would boost its reserves by $500 million. Gen Re would pretend that it had requested the transaction and would pay AIG a $10 million fee. But in a secret, unwritten side deal, AIG agreed to return the fee and pay Gen Re $5 million for the deal. Greenberg, one prosecution witness testified, approved the $5 million payment and called Ferguson for status updates on the deal on an almost daily basis.

Much of the evidence presented by prosecutors involved recordings of telephone calls between Gen Re officials. In one conversation caught on tape, Gen Re’s former general counsel said AIG’s approach to compliance has always been “Pay the speeding ticket.”

…Several times Greenberg also appeared to be on the verge of a settlement with Spitzer’s successor as New York State attorney general, Andrew Cuomo. Other Spitzer cases, including the compensation-abuse case against former New York Stock Exchange chairman Richard Grasso, had unraveled. Greenberg’s lawyers had always insisted that their client would agree to be deposed under oath if he could first obtain documents he was seeking from AIG that he claimed would exonerate him. After years of fighting AIG, he finally had the documents and was ready to testify. His civil lawyers, led by Boies and Gravante, were urging him to do so, but his criminal lawyer, Robert Morvillo, was adamantly opposed, because testifying under oath would raise Greenberg’s exposure to criminal prosecution.

Contrary to his agreement to testify, Greenberg took the 5th last Saturday.  Fortune has that story as well.

Hank Greenberg declines to answer questions in civil case about his role in a transaction with General Re that resulted in convictions of others.

Maurice “Hank” Greenberg, the legendary former chief executive of AIG, declined to answer questions Saturday from the New York Attorney General’s office about his role in a controversial transaction between AIG and another insurer. Instead, Greenberg invoked his Fifth Amendment rights, his defense lawyer confirmed.Questions about the deal led to Greenberg’s forced retirement from the once-mighty insurance giant three years ago. Since 2005, lawyers on Greenberg’s civil defense team had insisted that their client was eager to testify about the transaction, a reinsurance deal that AIG made with Berkshire Hathaway’s Gen Re unit.

They said repeatedly that as long as he was provided with the results of AIG’s internal investigation of the deal – which he eventually was – he would answer all of state regulators’ questions.

Greenberg’s chance to testify finally came on Saturday, but he declined. It was a stunning turnaround for a man who along with associates has spent just shy of a quarter of a billion dollars in legal and public relations fees to tell his side of the story and clear his name.

Keep your eye on this ball – and, read both articles, even if not today.  Like credit-default swaps, Greenberg is certain to figure prominently as Wall Street and Congress move forward with the bailout and AIG continues its effort to survive.