Insurance Executive

Greenberg Settles Case with New York AG After 12-Year Fight

Starr's CEO and Chairman decries the breadth of New York State's prosecutorial powers.
By: | February 14, 2017 • 3 min read

AIG’s former CEO and CFO settled a civil accounting fraud case last week that spanned 12 years, stretching back to the administration of former New York State Attorney General Eliot Spitzer.

In settling the case with current NYAG Eric Schneiderman, former AIG Chairman and CEO Hank Greenberg and Howard Smith, AIG’s former CFO, agreed to payments totaling $9.9 million; $9 million on the part of Mr. Greenberg and $900,000 on the part of Mr. Smith.

The case was mediated by noted attorney Kenneth Feinberg, who also mediated between British Petroleum and claimants in BP’s Gulf of Mexico oil spill and who will also be managing the claimants’ fund connected to the Volkswagen emissions scandal.

As part of the settlement, there was no admission of wrongdoing on the part of Greenberg, now the chairman and CEO of the Starr Companies, or Smith.

In a statement released Feb. 9, the New York Attorney General’s office said the $9.9 million represented bonus payments Greenberg and Smith received between 2001 and 2004. Despite the terms of the mediated settlement, the AG’s statement implied that the agreement amounted to an admission of fraud by Greenberg and Smith.

Both men strongly dispute that characterization of the settlement.

At a press conference in New York on February 13, Greenberg’s attorney David Boies, described the payments as nothing more than a “nuisance settlement” given the fact that the NYAG’s office had originally sought some $5 billion in damages.

“The New York Attorney General’s case had totally collapsed at trial,” said Boies.

In all, the civil actions initiated by Spitzer in 2005 amounted to nine separate charges.

One of the last two actions to reach settlement is related to a loss portfolio that AIG received as a reinsurer from Berkshire Hathaway subsidiary Cologne Re Dublin in the fourth quarter of 2000. Unbeknownst to Greenberg and other executives at AIG, a portion of the portfolio had already been reinsured elsewhere.

Thus, AIG’s acceptance of the portfolio resulted in an erroneous increase in its loss reserves, since the transaction involved little or no actual risk. An innocent accounting error that they were not aware of, not fraud, Greenberg, Smith and their attorneys argued.

“Nowhere in the agreed statement by Mr. Greenberg is there any reference to any accounting being fraudulent, let alone that Mr. Greenberg was aware of any fraud,” Boies said on Feb. 13.

“There was nothing in those transactions that we knew were wrong when they were done,” Smith added.

The second case, known as the Capco transaction, involved allegations that AIG attempted to confuse investors by equating underwriting losses with investment losses.

“The New York Attorney General’s case had totally collapsed at trial.” — David Boies, attorney for Hank Greenberg

Greenberg’s conflict with Spitzer is a long and painful one and can reasonably be said to have had a substantial impact on the nation’s and the world’s economy.

Under pressure from Spitzer, Greenberg was forced out as Chairman and CEO of AIG in 2005, having spent 40 years with the company.

At the time of Greenberg’s forced resignation, AIG had a presence in more than 130 countries and $180 billion in market capitalization. Three years after Greenberg’s removal, the company’s insurance of credit default swaps resulted in an almost catastrophic failure.  The rest is, literally, history.

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AIG required an $85 billion two-year government loan, which it has since paid back; but it had to sell off key assets to do so.

“AIG is currently a shadow of what it had been,” Greenberg said in a statement released on Feb. 13.

“It was an international asset and no longer is,” Greenberg said.

“It employed over 100,000 people and now it is about half of that.”

Greenberg is pursuing a defamation case against Spitzer for comments Spitzer made about him after leaving the AG’s office in 2006. Spitzer lasted a year as Governor of New York before allegations that he consorted with prostitutes drove him out of that office.

Greenberg also spoke out at the press conference in opposition to New York’s Martin Act, which gives state prosecutors broad powers to prosecute business leaders without having to prove fraudulent intent.

“That law should be changed, it should be knocked out,” Greenberg said.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at dreynolds@lrp.com.

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

This senior risk manager values his role in helping Varian Medical Systems support research and technologies in the fight against cancer.
By: | September 12, 2017 • 5 min read

R&I: What was your first job?

When I was 15 years old I had a summer job working for the city of Plentywood, mowing grass in the parks and ballfields, emptying garbage cans, hauling waste to the dump, painting crosswalk lines.  A great job for a teenager but I thought getting a college degree and working in an air-conditioned office would be a good plan long term.

R&I: How did you come to work in risk management?

I was enrolled in the University of Montana as a general business student, and I wanted to declare a more specialized major during my sophomore year. I was working for my dad at his insurance agency over the summer, and taking new agent training coursework on property/casualty risks in my spare time, so I had an appreciation for insurance. My dad suggested I research risk management for a career, and I transferred sight unseen to the University of Georgia to enroll in their risk management program. I did an internship as a senior with the risk management department at Sulzer Medica, and they offered me a full time job.

R&I: What could the risk management community be doing a better job of?

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We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks. If we initiate a collaborative exercise with the risk owners — people who may have unique knowledge about that particular risk — and include a cross section of people from other corporate functions, you can do an effective job of taking the risk apart to analyze it, figure out a way to manage that exposure, and then reap the upside benefits while reducing the downside exposure. That can be done with new products and new service offerings, when there isn’t coverage available for a risk. It’s asking, is there anything we can do to reduce the risk without transferring it?

R&I: What emerging commercial risk most concerns you?

Cyber liability. There’s so much at stake and the bad guys are getting more resourceful every day. At Varian, our first approach is to try to make our systems and products more resilient, so we’re trying to direct resources to preventing it from happening in the first place. It’s a huge reputation risk if one of our products or systems were compromised, so we want to avoid that at all costs.

We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks.

R&I: What insurance carrier do you have the highest opinion of?

I’ve worked with a number of great ones over the years. We’ve enjoyed a great property insurance relationship with Zurich. Their loss control services are very valuable to us. On the umbrella liability side, it’s been great partnering with companies like Swiss Re and Berkley Life Sciences because they’ve put in the time and effort to understand our unique risk exposures.

R&I: How much business do you do direct versus going through a broker?

One hundred percent through a broker. I view our broker as an extension of our risk management team. We benefit from each team member’s respective area of expertise and experience.

R&I: Is the contingent commission controversy overblown?

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I think so. The brokers were kind of villainized by Spitzer. I think it’s fair for brokers and insurers to make a reasonable profit, and if a portion of their profit came from contingent commissions, I’m fine with that. But I do appreciate the transparency and disclosure that came out as a result of the fiasco.

R&I: Are you optimistic about the US economy or pessimistic and why?

David Collins, Senior Manager, Risk Management, Varian Medical Systems Inc.

While we might be doing fine here in the U.S. from an economic perspective, the Middle East is a mess, and we’re living with nuclear threat from North Korea. But hope springs eternal, so I’m cautiously optimistic. I’m hoping saner minds prevail and our leaders throughout the world work together to make things better.

R&I: Who is your mentor and why?

My Dad got me started down the insurance and risk path. I’ve also been fortunate to work for or with a number of University of Georgia alumni who’ve been mentors for me. I’ve worked side by side with Karen Epermanis, Michael Rousseau, and Elisha Finney. And I’ve worked with Daniel Dean in his capacity as a broker.

R&I: What have you accomplished that you are proudest of?

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Raising my kids. I have a 15-year-old and 12-year-old, and they’re making mom and dad proud of the people they’re turning into.

On a professional level, a recent one would be the creation and implementation of our global travel risk program, which was a combined effort between security, travel and risk functions.

We have a huge team of service personnel around the world, traveling to customer sites to do maintenance and repair. We needed a way to track, monitor and communicate with them. We may need to make security arrangements or vet their lodging in some circumstances.

R&I: What do your friends and family think you do?

My 12-year-old son thought my job responsibilities could be summed up as a “professional worrier.” And that’s not too far off.

R&I: What about this work do you find the most fulfilling or rewarding?

Varian’s mission is to focus energy on saving lives. Proper administration of the risk function puts the company in a better position to financially support research that improves products and capabilities, helps to educate health care providers and support cancer care in general. It means more lives saved from a terrible disease. I’m proud to contribute toward that.

When you meet someone whose cancer has been successfully treated with one of our products, it’s a powerful reward.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at ksiegel@lrp.com.