The tensions rose another notch yesterday in the 7-year-old fraud case against former American International Group Inc. (AIG) Chief Executive Officer Maurice Greenberg and Chief Financial Officer Howard Smith. Greenberg bit back at New York Attorney General Eric Schneiderman, claiming that the state should be barred from invoking a 91-year-old state law in the case.
Greenberg and Smith requested permission to appeal the fraud case over a pair of dubious reinsurance transactions to the New York Court of Appeals—the state’s highest court—after a Manhattan appeals court last week decided that Schneiderman’s case could go to trial.
The attorney general is pursuing civil fraud claims against the former AIG executives under the state’s Martin Act, which gives Schneiderman power to fight financial fraud. The act, unlike federal law, does not require investigators to prove intent in order to prevail on a securities fraud claim.
The defendants won a minor victory last week when a New York appeals court panel decided that a lower court was too hasty when it held Greenberg and Smith responsible for damages over a transaction with Capco Reinsurance Co.—a deal that allegedly helped AIG cover up more than $200 million in losses.
However, the panel also said the lower court was right not to dismiss claims over a different transaction with reinsurer General Re Corp., which allegedly covered up $500 million in losses.
Reuters reports that Greenberg’s lawyer said a key issue is whether Schneiderman can use the Martin Act "to pursue a de facto securities class action" on behalf of shareholders, despite conflicting federal laws designed to promote "uniformity and certainty" in regulating securities.
The defendants had stated in a court filing that this power would make "every executive of a New York company or a company with shares traded on the New York Stock Exchange potentially liable - personally - for substantial damages for misstatements" by their companies, even without any proof of intent or reliance.
Schneiderman’s camp, however, sees things differently.
“We are confident that their latest attempt to reverse decades of settled law to escape responsibility for their misconduct will be rejected,” a spokesman said.
For more on the story, read Reuters.
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