New York Court Rejects Greenberg Appeal in AIG Suit

Copyright 2009 A.M. Best Company, Inc.All Rights Reserved BestWire

March 13, 2009 Friday 04:13 PM EST

518 words

New York Court Rejects Greenberg Appeal in AIG Suit

Alyn Ackermann

NEW YORK

A New York state court rejected an appeal by Maurice R. "Hank" Greenberg and a group of former American International Group Inc. officials who sought to halt a lawsuit stemming from a fight over control a block of AIG stock held by Greenberg's Starr International Co.

A panel of the New York Supreme Court's Appellate Division, First Department, rejected an appeal of a lower judge's order rejecting a stay of the case while a similar lawsuit in U.S. District Court in Manhattan is heard.

"AIG's allegations herein arise out of defendants' alleged independent fiduciary duties to AIG by virtue of their express pledges to preserve the value of said stock," the decision said. "A finding as to SICO's duty to AIG would not affect defendants' potential liability as independent fiduciaries of AIG and would not dispose of or significantly limit the issues involved in this action or pose a risk of inconsistent rulings."

AIG (NYSE: AIG) sued Greenberg, its former chief executive and chairman, and several former AIG officials, all of whom became SICO officials, in New York state court last year for allegedly misappropriating a large block of AIG shares. It initially filed suit over the stock in federal court in 2005, in a counterclaim suit to claims filed by Greenberg. AIG said the state suit differs from the federal action because it alleges the individual defendants breached their fiduciary responsibilities to AIG, while in the federal action, AIG is seeking to regain control over the shares from Starr (BestWire, March 28, 2008).

Starr is controlled by Greenberg, who led AIG for nearly four decades before being forced out during accounting investigations in 2005. SICO had been controlled by AIG during Greenberg's tenure as chief executive.

AIG claims in the federal suit, which is scheduled to go to trial in June, that SICO held the stock in what AIG claimed was a trust primarily designed to fund its executive compensation plan. AIG maintains that Greenberg engineered a takeover of the SICO board and violated SICO's fiduciary responsibility for the trust. SICO maintains that it owns the stock and AIG has no claim to it (BestWire, Feb. 27, 2009).

AIG was saved from bankruptcy in September by a federal rescue plan that has grown to as much as $180 billion, and it is now struggling to restructure itself and repay federal loans (BestWire, March 9, 2009).

"AIG can and will go forward with its claims to recover these assets, restore value for shareholders and ensure that U.S. taxpayers are repaid as soon as possible," the company said in a statement.

Efforts to obtain comments from the defendants were not immediately successful.

The value of the stock in question has plummeted, along with AIG's stock price, since 2005, when it was valued at $20 billion. Shares of AIG were 50 cents in afternoon trading on March 13, up 21.4% from the previous close. The share price 52 weeks ago was $49.50.

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

(By Alyn Ackermann, senior associate editor, BestWeek: [email protected])

March 14, 2009