Maurice R. "Hank" Greenberg - angry and vindictive after being
forced out as American International Group Inc.'s (AIG) chief
executive - improperly seized control in 2005 of millions of shares
of the insurer's stock held by a sister company, Starr
International Co., a lawyer for AIG said Monday.
In his opening statement, Theodore Wells, a lawyer for AIG, said
Greenberg, through Starr International, or SICO, violated a trust
agreement, in which the shares would be used to fund a
deferred-compensation plan for select AIG executives.
However, David Boies, a lawyer for SICO, said AIG wasn't a
beneficiary of the trust and has no right to the shares at issue.
He said the block of shares was placed with SICO to protect AIG
from a takeover bid, to go to charity if SICO were liquidated and
to fund other projects, such as compensation for select AIG
executives.
"It was Hank Greenberg who betrayed the trust, the pledge,"
Wells said.
AIG is suing SICO for $4.3 billion in damages - representing
millions of shares of stock sold by SICO - and control of 185.6
million remaining shares of the insurer. The shares went to Starr
in 1970 as part of a reorganization of AIG and its affiliates.
The insurer is alleging breach of fiduciary duty and improper
conversion, or taking, of the shares.
The trial is expected to last about a month. Greenberg is
expected to take the stand Tuesday.
However, some of the more colorful elements of this long-running
dispute won't be on display.
On Monday, U.S. District Judge Jed S. Rakoff in Manhattan, who
is presiding, ruled that AIG's lawyers can't bring up the
circumstances behind Greenberg's forced departure from AIG - namely
probes into the company's accounting.
In 2006, AIG agreed to pay more than $1.6 billion to settle
accounting and fraud allegations by the New York Attorney General's
Office and the Securities and Exchange Commission. The attorney
general's office is separately pursuing a civil action in state
court against Greenberg.
Judge Rakoff also restricted SICO's lawyers from discussing at
trial recent probes into the insurer's controversial payment of
retention bonuses to some employees last fall after it took
billions of dollars in government bailout money.
"This is a case about an alleged trust and an alleged conversion
of valuable shares," the judge said. "It's not a forum for airing
all the innumerable other issues - many of which are unresolved -
about Mr. Greenberg, Starr, AIG bonuses, investigations and what
have you."
During his opening, Wells said SICO for 35 years used the stock
to fund a deferred-compensation plan in which participating AIG
executives received compensation from the plan when they retired
from the company. It was an incentive to keep executives at the
company long term, Wells said.
That changed after Greenberg was forced out. Greenberg "got an
attitude, got mad and said it's payback time," Wells said.
Greenberg threw eight AIG executives off of SICO's board and
took control of the shares, Wells said. He also ordered that the
AIG share certificates, which were being held in New York, be flown
by private plane to Bermuda after AIG filed legal claims over
control of the shares.
He directed shares be sold and the proceeds were used in part
for other investments, including Russian real-estate development, a
Chinese insurer and a New Orleans hotel, Wells said. Greenberg also
began remaking SICO as an insurer to compete directly with AIG,
Wells said.
However, Greenberg, for years, had described the shares at SICO
as being held in trust for the benefit of "future generations of
managers in AIG companies" and that he expected it had enough stock
to fund the program for hundreds of years, Wells said.
During his opening statement, Wells played one of several
videotapes of speeches given by Greenberg that are expected to be
played at trial in which he describes the arrangement as a "trust
that cannot be broken by anybody." The speeches were given to AIG
employees between 1989 and 2001.
A spokeswoman for Greenberg didn't immediately return a phone
call seeking comment.
In his opening statement, Boies, SICO's lawyer, said AIG has no
right to the shares and wasn't the beneficiary of any trust.
The type of trust that AIG now claims was in place would have
restricted SICO's ability to protect the insurer for takeover, turn
its shares over to charity in the event of liquidation or engage in
new projects. AIG has no written agreement for a trust in which it
is the sole beneficiary, Boies said.
"It couldn't be clearer: What SICO does with SICO's stock is up
to SICO," Boies said.
AIG repeatedly said in its corporate filings that the shares
were beneficially owned by SICO, not AIG, Boies said.
Boies is expected to continue his opening statement on
Tuesday.
-By Chad Bray, Dow Jones Newswires; 212-227-2017;
chad.bray@dowjones.com