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Greenberg May Sell Shares, Maintain Assault on AIG

In an attempt comply with New York State law, former AIGchief Hank Greenberg may sell some of his massive stake in the company, a move that would allow him to continue his assault against current management, CNBC has learned.

Maurice "Hank" Greenberg
AP
Maurice "Hank" Greenberg

The state law in question, known as article 15 of the state's insurance statutes, strictly limits what so-called "controlling people" can say about companies where they hold 10 percent or more of the stock.

Greenberg was ousted from AIG in 2004 amid an accounting scandal, but he remained head of a company called CV Starr, which held more than 10 percent of all AIG shares. Combined with his own massive stake of the company he built into an insurance powerhouse, Greenberg controls around 12 percent of all AIG shares.

But to comply with the law, Greenberg may now sell some of the stake he controls to bring his holdings below 10 percent, according to people with knowledge of the matter.

Greenberg and his representatives recently met with the state's insurance commissioner, Eric Dinallo, where they raised the question of whether such a move would allow him to once again start a full-frontal assault against AIG and its current management. Greenberg believes those managers are responsible for the company's recent financial problems. Dinallo said reducing his stake would likely allow him to say what he wants, according to these people.

An official from the state’s insurance department had no immediate comment. A spokesman for Greenberg said the former AIG chief has never been in violation of the law. "The suggestion that CV Starr and Mr. Greenberg are currently or previously have been in violation of the New York Insurance laws or are in any way attempting circumvent them is totally inaccurate,” a spokesman for Greenberg said.

Still, people close to the insurance department said that officials in the department believe that on several recent occasions, Greenberg came close to violating the law based on some of his public comments. One of those public statements included an answer to a question on CNBC's "Kudlow & Co.," where host Larry Kudlow asked him if he was looking to get rid of the board of AIG. Greenberg said, "…I think we need to explore what we can do to have another run at the board. It seems to me that they have a responsibility to let shareholders express their viewpoint. After all, that is their responsibility. The owners are the shareholders, not the board of directors and…I hope that message is clear and unequivocal to them." (For the full CNBC report, see the video above.)

People close to the insurance department say Greenberg may not have to sell his shares in order to fully comply with the law and become more vocal about AIG; he can also put them in a trust, or he can register with the state as a control person.

But if he chose to register, it is unclear whether the state would reject his application, because Greenberg is an unindicted conspirator in a criminal case involving a disputed insurance transaction that occurred under his watch as AIG chief and resulted in the convictions of several executives.

Greenberg has also received a Wells Notice, informing him that the SEC may charge him with civil fraud violations with regard to the deal in question. Greenberg has said he’s done nothing wrong.

The shares Greenberg has held in AIG have been a major source of acrimony between AIG and Greenberg. AIG says the shares are rightfully the company's because they were used primarily to provide compensation to executives. Greenberg says AIG and CV Starr are completely separate entities.

The shares also give Greenberg leverage against AIG and its management, including current CEO Martin Armstrong, whom Greenberg accuses of doing a lousy job and blames for the company's poor performance and massive writedowns of bad debt.

Because of his massive holdings, Greenberg was able to take the first steps last year to launch a proxy fight to ditch current management, but he later backed off the effort amid discussions with officials from the state insurance department.