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 [email protected]

More from Risk & Insurance

More from Risk & Insurance

Absence Management

Establishing Balance With Volunteers

It’s good business to allow job-leave for volunteer emergency responders, whether or not state laws apply.
By: | January 10, 2018 • 7 min read

If 2017 had a moniker, it might be “the year of the natural disasters,” thanks to a phenomenal array of catastrophic or severe events— hurricanes, tornadoes, wildfires, ice storms and floods.

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Combined with smaller-scale fires and other emergencies, these incidents tax the resources of local and state emergency services, often prompting the need to call volunteer emergency responders into action.

But as lean as most organizations are already running, volunteer activities can sometimes cause friction between employees and employers. Handling conflicts the wrong way can potentially lead to legal headaches, harm employee morale and batter a company’s reputation.

State by State Variations

Most employers are aware of the various federal and state leave laws protecting their employees, including family and medical leave, pregnancy leave and military leave. But leave laws that protect the livelihoods of volunteer emergency responders are more likely to fly under the radar of some HR managers and risk managers.

Such laws don’t exist in every state, but more than 20 states do have some type of law in place to protect volunteers including emergency responders, firefighters, disaster workers, medical responders, ambulance drivers or peace officers.

Marti Cardi, vice president of Product Compliance for Matrix Absence Management

The laws vary broadly. Nearly all specify that such leave be unpaid, and that employees disclose their volunteer status to employers and provide documentation for each leave. But there is a spectrum of variations in terms of what may trigger an eligible leave. Some, for instance, apply for any emergency that prompts a call from the volunteer’s affiliated responder group. Others may require a government declaration of emergency for the law to be triggered.

While many of the laws do not explicitly require employers to let employees leave work when called to an emergency during a shift, most specify that an employee may be late or even miss work entirely without facing termination or any other adverse employment action.

Some states mandate a maximum number of unpaid leave days that a volunteer can claim. But others may place more significant burdens on employers. In California, for instance, employers with 50 or more employees are required to grant up to 14 days of unpaid leave for training activities in addition to any leave taken to respond to emergency events. For multistate employers, keeping on top of what obligations may apply in each circumstance can be a challenge.

Significant Risks

Large or mid-sized employers may rely on absence management providers to keep them in compliance. For smaller employers though, it may be as simple as looking up a state’s law via Google to find out what’s required. However, checking in with the state department of labor or the company’s attorney may be the best way to get the correct facts.

“I would caution that just because you don’t find something [on the internet], it doesn’t mean it’s not there,” said absence management and employment law attorney Marti Cardi, vice president of Product Compliance for Matrix Absence Management.

For example, Cardi said, an obscure Texas law provides job-protected leave for volunteer ham radio operators called into service during an emergency.

Cardi said employers should task HR to investigate the laws in each state the company operates in, and to ensure that supervisors are educated about the existence of these laws.

“If a supervisor is told by one of his or her employees, ‘Sorry I’m not coming in today … I’ve been called to volunteer firefighter duty for the [nearby region] fire,’” she said, you want to be sure that the supervisor knows not to take action against the employee, and to contact HR for guidance.

“Training supervisors to be aware of this kind of absence is really important.”

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An employer that does terminate a protected volunteer for responding to an emergency may be ordered to pay back wages and reinstate the employee. In some cases, the employee may also be able to sue for wrongful termination.

And of course, “you don’t want to be the company in the headlines that is getting sued because you fired the volunteer firefighter,” she added.

If an employer bars a volunteer from responding, the worst-case scenario may be a third-party claim. Failure to comply with the law could give rise to a claim along the lines of “‘If you had complied with your statutory obligation to give Jane Doe time to respond, my loved one would not have died,’” explained Philadelphia-based Jonathan Segal, partner at law firm Duane Morris and managing principal of the Duane Morris Institute.

“That’s the claim I think is the largest in terms of legal risk.”

Even if no one dies or is seriously injured, he added, “there could still be significant reputational risk if an individual were to go to the media and say, ‘Look, I got called by the fire department and I wasn’t allowed to go.’”

The Right Thing to Do

What employers should be thinking about, Segal said, is that whether or not you have a legal obligation to provide job-protected leave for volunteer responders, “there’s still the question of what are the consequences if you don’t?”

Employee morale should be factored in, he said. The last thing any company wants is for employees to perceive it as insensitive to their interests or the interests of the community at large.

“Sometimes employers need to go beyond the law, and this is one of those times,” — Jonathan Segal, partner, Duane Morris; managing principal, Duane Morris Institute

“How is this going to resonate with my employees, with my workforce, how are people going to see this? These are all relevant factors to consider,” he said.

There’s an argument to be made for employers to look at the bigger picture when it comes to any volunteer responders on their payroll, said Segal.

“Sometimes employers need to go beyond the law, and this is one of those times,” he said. “Think about the case where’s there’s not a specific state law [for emergency responders] and you say to a volunteer, ‘No, you can’t leave to deal with this fire’ and then people die. You as an employer have potentially played a role, indirectly, because you didn’t allow the first responder or responders to go,” he said.

The bottom line is that “it’s the right thing to do, even if it’s not required by law,” agreed Cardi.

“I feel that companies should have a policy that they’re not going to discipline or discharge someone for absences due to this kind of civic service, subject to verification of course.”

Clear Policy

While most employers do strive to be good corporate citizens, it goes without question that employers need to guard their own interests. It’s not especially likely that volunteer responders will try to take advantage of the unpaid leave allowed them, but of course, it could happen.

That’s why it’s important to have policies that are aligned with state laws. Those policies could include:

  • Notifying the company of any volunteer affiliations either upon hire or as soon they are activated as volunteers.
  • Requiring that employees notify a supervisor as soon as possible if called to an emergency (state requirements vary).
  • Requiring documentation after the event from the head of the entity supervising the volunteer’s activities.

If at some point it becomes excessive – someone has responded to emergencies five times in nine weeks, then it’s time to examine the specifics of the law and have a discussion with the employee about what’s reasonable, said Segal. It may also be time to ask specifics about whether the person is volunteering each time, or are they being called.

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In some cases, the discussion may need to be about finding a middle ground, especially if an employee has taken on an excessively demanding volunteer role.

“We encourage volunteers to pick the style that best fits their schedule,” said Greta Gustafson, a representative of the American Red Cross. “Disaster volunteers can elect to respond to disasters locally, nationally, or even virtually, and each assignment varies in length — from responding overnight to a home fire in your community to deploying across the country for several weeks following a hurricane.

“The Red Cross encourages all volunteers to talk with their employers to determine their availability and to communicate this with their local Red Cross chapter.”

Segal suggests approaching it as an interactive dialogue — borrowing from the ADA. “Employers may need to open a discussion along the lines of ‘I need you here this week because this week we have a deliverable on Friday and you’re critical to that client deliverable,’” he said, but also identify when the employee’s absence would be less critical.

No doubt there will be tough calls. An employer may have its hands full just trying to meet basic customer needs and need all hands on deck.

“That may be a situation where you say, ‘First let me check the law,’” said Segal. If there’s a leave law that applies, “then I’m going to need to comply with it. If there’s not, then you may need to balance competing interests and say, ‘We need you here.’” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]