(CN) – A federal judge in Manhattan rejected American International Group’s claim that its former CEO and his company sold millions of shares of AIG stock that had been earmarked for “generations” of AIG executives.
AIG claimed Maurice “Hank” Greenberg and Starr International Co. (SICO) made more than $4 billion by selling the stock.
U.S. District Judge Jed S. Rakoff upheld a jury’s verdict in July that the insurer failed to prove there was a written agreement that the retirement program was created by and for AIG.
AIG claimed an oral trust was created in 1970 during a company reorganization, which put nearly one-fourth of AIG’s market capitalization in Starr. Starr is a private company whose foundation is AIG’s stock.
The insurer claimed the investment was “designed to benefit AIG” by creating a deferred compensation program for its management.
“‘Put it in writing’ is the law’s way of saying ‘get serious.’ In many circumstances, oral commitments are just too slippery to be enforced,” Judge Rakoff wrote in his 59-page opinion.
“The law will not recognize such an oral trust unless the evidence of its creation is unequivocal,” he wrote. “This is a burden that AIG has not come close to shouldering.”
The judge ruled on one claim for breach of trust.
AIG hadn’t been able to convince the jury, either. It argued that Greenberg was lying in order to conceal the existence of the trust, and that he “looted” the AIG stock in retaliation for being forced out of the company amid an accounting scandal in 2005.
Greenberg resigned from AIG after 38 years as CEO. The same day he stepped down, Starr directors met and removed all AIG employees from Starr’s board.
Greenberg and the board had the AIG stock certificates flown from New York to Bermuda, where they were deposited into an account. Greenberg began selling some of the stock and investing in businesses that, at the time, competed with his former company. He also canceled the AIG compensation program.
AIG sought $4.3 billion in damages.
“It was the court’s distinct impression, based on the jurors’ ‘body language,’ that the jury did not credit certain portions of Greenberg’s testimony; but the jury found in SICO’s favor nonetheless,” the judge wrote.
AIG produced no witnesses who could testify that the trust existed. This included company directors, executives, auditors, lawyers and employees.
“So strong is the evidence against the existence of the trust,” Judge Rakoff wrote, “SICO’s counsel even argued at trial that it was simply a concoction of AIG’s counsel.”
Judge Rakoff said that assertion is not entirely fair, because Greenberg himself referred to the retirement funds “as a kind of trust.”
Greenberg believed the 1970 reorganization was an “unprecedented act in U.S. business history.” He reportedly said the AIG shares in question “should not be used to enrich the then-shareholders of Starr, but should instead be held by them as fiduciaries for future generations of AIG management,” according to Fortune magazine writer Carol Loomis, who wrote a book about the history of AIG. Greenberg said he wanted the trust to continue for “hundreds of years.”
AIG also claimed Greenberg repeatedly said the goal of the trust was to be able to fend off any hostile takeovers of AIG.
The jury deliberated for less than a day after a three-week trial, showing that “in the end, it appears that the case was not, in the jury’s eyes, a close one,” Rakoff wrote.
“Similarly, the court, having made its independent assessment of Greenberg’s credibility, concludes that his testimony and the truth did not always converge; but the inaccuracies were not as material as AIG argued.
“Still at other times, his testimony was, in the court’s view, entirely truthful,” the judge wrote. “In the end, however, it was the other evidence, and not Greenberg’s testimony, that this court found persuasive in reaching this verdict.”
Or lack of evidence, for that matter. AIG’s downfall was that it couldn’t produce the smoking gun, namely any written evidence, to prove Starr was obligated to continue funding AIG’s deferred compensation program.
“It borders on the incredible that a public company would commit shares representing approximately one-fourth of its total market capitalization to a trust of which it is the sole beneficiary without the slightest documentation of this fact,” Rakoff wrote.