MANHATTAN (CN) – With world-class chutzpah, AIG says its former CEO Maurice Greenberg and six other top executives misappropriated $20 billion in stock that had been set aside for 35 years to protect the company from hostile takeovers, and that Greenberg then announced he would use the swag as an “endowment” to establish “a so-called ‘charitable foundation.'”
The complaint states: “AIG brings this action to remedy breaches of fiduciary duty involving the defendants’ misappropriation of a special block of AIG shares worth approximately $20 billion in 2005.
“For 35 years, from 1970 to 2005, those shares, known as the ‘Acquired Stock,’ were entrusted to an AIG affiliate called Starr International Company, Inc. (‘SICO’) which, under the direction of AIG management, were used solely to protect AIG from hostile takeovers and to provide incentive compensation to current and future generations of AIG employees.
“As defendant and former AIG Chairman and CEO Greenberg once said, the value of the Acquired Stock had been developed ‘by past generations’ of AIG executives and, therefore, ‘should not be used to enrich the then shareholders of SICO, but should instead be held by them as fiduciaries for future generations of AIG management.’ …
“In March 2005, however, things suddenly changed. Under investigation by state and federal officials for accounting fraud, Greenberg was forced to resign as CEO of AIG and [defendant Howard] Smith was terminated as CFO. Then, while they remained Directors of AIG, they and the other defendants did what they had pledged they would never do and what the law forbid them to do: they seized control of SICO … and misappropriated the Acquired Stock for their own benefit. …
“Then, in breach of their fiduciary duties to AIG, the defendants declared that SICO would not honor the AIG deferred compensation program and that there would be no more such programs in the future. Instead, the Acquired Stock that had been held in trust for three decades for the sole benefit of AIG, has been converted into a private ‘investment vehicle’ for the benefit of Greenberg and the other defendants.”
The complaint continues: “On Dec. 21, 2006, in a public relations ploy to justify the unlawful conversion of the Acquired Stock and to polish Greenberg’s tarnished reputation, the formation of a so-called ‘charitable foundation’ was announced. It was located in Switzerland and called the Starr International Foundation. Greenberg boasted to the press that he had established one of the ‘world’s largest charitable entities,’ to be ‘rivaled only by the Bill and Melinda Gates Foundation.’ Under the headline, ‘Greenberg Establishes Charitable Foundation,’ it was reported that ‘Greenberg has begun offering grants’ from an ‘endowment expected to exceed $20 billion.’ That $20 billion is the Acquired Stock that defendants undertook to protect and preserve as fiduciaries of AIF, that defendants committed never to invade for their personal benefit, and that SICO held in trust for 35 years solely for the benefit of AIG.”
Then-New York Attorney General Eliot Spitzer’s investigation of Greenberg forced the CEO to step down from his position with AIG. Greenberg maintained throughout that Spitzer brought the case to boost his chances of obtaining the governor’s office – a post that Spitzer eventually won, and held for just over a year.
Here are the defendants: Maurice Greenberg, Howard Smith, Edward Matthews, Ernest Stempel, L Michael Murphy, John Roberts, and Houghton Freeman.
AIG is represented by Martin Flumenbaum with Paul, Weiss, Rifkind, Wharton & Garrison.