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High State Court to Consider Appeal From Hank Greenberg

Seven years after he was first sued by New York state prosecutors for securities fraud, the allegations against former American International Group chief Maurice “Hank” Greenberg are still pending — and may now be considered by the Court of Appeals, New York’s highest court.

AP

The state’s appellate division today granted a motion by Greenberg and former AIG Chief Financial Officer Howard Smith for permission to appeal its May 8 ruling allowing New York prosecutors to take their fraud charges to trial. That decision, which may shift the Greenberg case up to the Court of Appeals, is significant for two reasons: It could result in the fraud charges against the former executives to be tossed out through a motion for summary judgment, and, in so doing, could raise major questions about the efficacy of a century-old law called the Martin Act.

That act, which allows corporate executives to be tried for securities fraud even if their intention can’t be proved, was one of the key tools used by Eliot Spitzer to sue company officials for fraud in the early 2000s. Indeed, in 2005, the Martin Act allowed state prosecutors to sue Greenberg and Smith, arguing that, as officials at AIG , they used bogus reinsurance transactions, among other things, to shade the insurer’s true financial condition.

Even as he was forced out of his post as a result, Greenberg denied that he had engaged in fraud, and continues to now.

Greenberg’s lawyers on Tuesday evening described the appellate division’s decision as a victory for both their client and for critics of the Martin Act, noting in a statement that the state laws “allow claims against corporate executives without actual knowledge of or participation in the wrongdoing alleged.” The statement added that Tuesday’s unanimous ruling raises new questions as to “whether an action based solely on hearsay evidence can survive” a challenge to its legitimacy.

A spokesman for Attorney General Eric Schneiderman, who has pursued the case against Greenberg, said in a statement that “our office is confident the Court of Appeals will uphold the lower court’s decision, and we look forward to trying this case to hold the defendants accountable for perpetrating a major reinsurance scheme to defraud investors.”

Spitzer could not be reached for comment.

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