The latest act in the drama of the American International Group opens Monday when the ailing insurance giant takes its former chief executive to court, accusing him of plundering a trust that it says was set up to pay top performers.
A.I.G. contends Maurice R. Greenberg, 84, who ran the company for decades, unlawfully took
$4.3 billion in stock in 2005, the year he was forced out as chief executive.
Mr. Greenberg and his lawyers say that those A.I.G. shares — owned by Starr International, a privately held company, of which he is chairman — were not held in a trust at all. As Starr’s chairman, they say, Mr. Greenberg had the authority to sell the shares and invest the proceeds in new offshore insurance businesses and in a new charitable arm.
The government bailout of A.I.G. occurred after the main events in the case, which revolve around the intricacies of trust and securities law. But the trial may delve into the broader questions of who is responsible for A.I.G’s near collapse and whether, as chief executive of A.I.G., Mr. Greenberg was more preoccupied with financial maneuvers than with fostering sound risk management. For his part, he has accused the government of destroying a company that he nurtured.
Though Mr. Greenberg sold the $4.3 billion block of stock in 2005, long before the price crashed, he kept much of his personal fortune in A.I.G. shares. When the government stepped in last fall, taking a 79.9 percent stake in the company, Mr. Greenberg and other shareholders were essentially wiped out.
The dispute over the Starr International stock sale began with a complaint filed by Mr. Greenberg that A.I.G. was holding an art collection that belonged to Starr. A.I.G. countersued, denying Mr. Greenberg’s accusations and saying he had promised to pay its employees hundreds of millions of dollars and needed to make good.
Compensation is a touchy subject at A.I.G. The company came under attack in March when it paid a round of bonuses granted before the bailout. Congressmen said that no company on federal life support had any business paying such extensive bonuses. Furthermore, A.I.G.’s bonus structure in previous years was said to have encouraged excessive risk-taking. Most of the recipients of the recent bonuses repaid the money, and several resigned.
On Thursday, one day after the Treasury appointed a new executive compensation czar, A.I.G. said it would use any money recovered in the case to repay its government debts. Initially, though, it said that it would use the proceeds to create a new bonus program for executives.
After the jury selection in United States District Court in Manhattan, the opening arguments for Mr. Greenberg will be made by David Boies, the former federal prosecutor who tangled with Microsoft during the Clinton administration, and who represented Al Gore during the contested presidential election of 2000.
A.I.G. will be represented by Theodore V. Wells Jr., a white-collar criminal defense lawyer whose clients have included I. Lewis Libby Jr., known as Scooter, the former chief of staff to the former vice president; and the one-time junk-bond financier, Michael R. Milken.
Mr. Wells also has represented Mr. Greenberg’s old nemesis, Eliot Spitzer, the former governor of New York, after Mr. Spitzer was found to have been involved with a prostitution ring.
Many of the events leading up to Monday’s trial took place in 2005. Mr. Spitzer, then New York State attorney general, was investigating A.I.G. for possible involvement in a bid-rigging conspiracy concerning several companies, including the insurance broker, Marsh & McLennan, which was led by Jeffrey Greenberg, the son of the A.I.G. chief. That inquiry came after accusations by the Securities and Exchange Commission that A.I.G. had been selling insurance-like products intended to help its clients manipulate earnings.
In March 2005, after an outside auditor told the A.I.G. board it could not vouch for the company’s numbers, the board ousted Mr. Greenberg, who remained chairman of Starr International, a private company that paid compensation to A.I.G. executives and had a charitable arm. Starr was established in its present form four decades ago, when the modern-day A.I.G. was formed from a network of mostly offshore insurance companies assembled by Mr. Greenberg’s mentor, Cornelius Vander Starr.
It is exceedingly rare for one company to pay another’s compensation, and Mr. Greenberg has said that tax considerations would make it impossible to duplicate Starr’s structure today.
A.I.G. contends that the company was a “compensation trust,” fulfilling the wishes of Mr. Starr, who died in 1968; Mr. Greenberg was the executor of his will. A.I.G. says Mr. Greenberg breached this trust when he sold the A.I.G. shares.
But Mr. Greenberg is expected to argue that the only trust that existed was Starr International’s charitable arm, which is also its sole shareholder.