By Erik Holm
A New York appeals panel said Tuesday that a lower-court judge was too hasty in ruling against former American International Group Inc. (AIG) Chief Executive Hank Greenberg in 2010.
The appellate court, in a 4-1 decision, said there was enough evidence in the state's fraud case against Greenberg and AIG's former chief financial officer, Howard Smith, for it to move ahead to trial and that a ruling for summary judgment on one part of the case had been premature.
The court threw out a portion of the Oct. 2010 ruling from New York State Supreme Court Justice Charles Ramos, in which Ramos had concluded that Greenberg and Smith were liable for damages caused by the smaller of two reinsurance transactions that New York's attorney general has said were shams to cover up AIG's true financial condition.
The entire lawsuit had been on hold as Greenberg's legal team and the New York Attorney General's office both appealed different aspects of the Ramos ruling. The case stretches back to 2005, when then-New York Attorney General Eliot Spitzer accused Greenberg and Smith of helping to arrange the reinsurance transactions to hide AIG's losses.
Greenberg was forced from the insurer in 2005 amid accounting probes by the attorney general's office and other regulators. The lawsuit has now spanned the tenures of three attorneys general.
Ramos had concluded in 2010 that Greenberg and Smith were both aware of a "fraudulent or deceitful" transaction involving the now-defunct Capco Reinsurance Co. to cover up about $200 million in underwriting losses in AIG's general insurance business. AIG converted losses in its auto-warranty business into investment losses in Capco--outside AIG's general insurance business--to reduce their presence in AIG's own accounting.
On Tuesday, the New York State Supreme Court's Appellate Division for the First Department found that there was enough evidence for a trial over both the Capco transaction and a larger one involving General Re Corp., a unit of Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB).
There are "triable issues of fact as to whether defendants knew of, or participated in the fraudulent aspects of the GenRe and Capco schemes, given the nature and degree of their personal involvement in both of the challenged transactions, as well as defendants' responsibilities within the corporation," the appellate judges wrote.
The appeals court also upheld Ramos's decision not to grant summary judgement to Greenberg and Smith. A lawyer for Smith, in a joint statement with Greenberg's lawyers, said the two men intend to take the case to New York's highest appeals court to challenge that decision.
"Mr. Greenberg and Mr. Smith intend to seek leave to appeal to the New York Court of Appeals with regard to these matters in order to have this misguided action, filed by then Attorney General Elliot Spitzer in 2005, conclusively dismissed," said Smith's attorney, Vincent Sama.
-By Erik Holm, Dow Jones Newswires; 212-416-2892; [email protected]
--Chad Bray contributed to this article.