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

2017 Teddy Awards

The Era of Engagement

The very best workers’ compensation programs are the ones where workers aren’t just the subject of the program, they’re a part of it.
By: | November 1, 2017 • 5 min read

Employee engagement, employee advocacy, employee participation — these are common threads running through the programs we honor this year in the 2017 Theodore Roosevelt Workers’ Compensation and Disability Management Awards, sponsored by PMA Companies.

A panel of judges — including workers’ comp executives who actively engage their own employees — selected this year’s winners on the basis of performance, sustainability, innovation and teamwork. The winners hail from different industries and regions, but all make people part of the solution to unique challenges.

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Valley Health System is all-too keenly aware of the risk of violence in health care settings, running the gamut from disruptive patients to grieving, overwrought family members to mentally unstable active shooters.

Valley Health employs a proactive and comprehensive plan to respond to violent scenarios, involving its Code Atlas Team — 50 members of the clinical staff and security departments who undergo specialized training. Valley Health drills regularly, including intense annual active shooter drills that involve participation from local law enforcement.

The drills are unnerving for many, but the program is making a difference — the health system cut its workplace violence injuries in half in the course of just one year.

“We’re looking at patient safety and employee safety like never before,” said Barbara Schultz, director of employee health and wellness.

At Rochester Regional Health’s five hospitals and six long-term care facilities, a key loss driver was slips and falls. The system’s mandatory safety shoe program saw only moderate take-up, but the reason wasn’t clear.

Rather than force managers to write up non-compliant employees, senior manager of workers’ compensation and employee safety Monica Manske got proactive, using a survey as well as one-on-one communication to suss out the obstacles. After making changes based on the feedback, shoe compliance shot up from 35 percent to 85 percent, contributing to a 42 percent reduction in lost-time claims and a 46 percent reduction in injuries.

For the shoe program, as well as every RRH safety initiative, Manske’s team takes the same approach: engaging employees to teach and encourage safe behaviors rather than punishing them for lapses.

For some of this year’s Teddy winners, success was born of the company’s willingness to make dramatic program changes.

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Delta Air Lines made two ambitious program changes since 2013. First it adopted an employee advocacy model for its disability and leave of absence programs. After tasting success, the company transitioned all lines including workers’ compensation to an integrated absence management program bundled under a single TPA.

While skeptics assume “employee advocacy” means more claims and higher costs, Delta answers with a reality that’s quite the opposite. A year after the transition, Delta reduced open claims from 3,479 to 1,367, with its total incurred amount decreased by $50.1 million — head and shoulders above its projected goals.

For the Massachusetts Port Authority, change meant ending the era of having a self-administered program and partnering with a TPA. It also meant switching from a guaranteed cost program to a self-insured program for a significant segment of its workforce.

Massport’s results make a great argument for embracing change: The organization saved $21 million over the past six years. Freeing up resources allowed Massport to increase focus on safety as well as medical management and chopped its medical costs per claim in half — even while allowing employees to choose their own health care providers.

Risk & Insurance® congratulates the 2017 Teddy Award winners and holds them in high esteem for their tireless commitment to a safe workforce that’s fully engaged in its own care. &

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More coverage of the 2017 Teddy Award Winners and Honorable Mentions:

Advocacy Takes Off: At Delta Air Lines, putting employees first is the right thing to do, for employees and employer alike.

 

Proactive Approach to Employee SafetyThe Valley Health System shifted its philosophy on workers’ compensation, putting employee and patient safety at the forefront.

 

Getting It Right: Better coordination of workers’ compensation risk management spelled success for the Massachusetts Port Authority.

 

Carrots: Not SticksAt Rochester Regional Health, the workers’ comp and safety team champion employee engagement and positive reinforcement.

 

Fit for Duty: Recognizing parallels between athletes and public safety officials, the city of Denver made tailored fitness training part of its safety plan.

 

Triage, Transparency and TeamworkWhen the City of Surprise, Ariz. got proactive about reining in its claims, it also took steps to get employees engaged in making things better for everyone.

A Lesson in Leadership: Shared responsibility, data analysis and a commitment to employees are the hallmarks of Benco Dental’s workers’ comp program.

 

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