Friday night (10 February) brought a spectacular end to probably the most important insurance dispute of a generation as New York's Attorney General (AG) announced that former AIG boss Maurice "Hank" Greenberg had admitted to involvement in two fraudulent transactions during his decades-long tenure.
After a prosecution that had lasted almost 12 years, the statement from Eric Schneiderman initially appeared to end the war of words between his office and Greenberg. But it immediately prompted the 91-year-old insurance veteran to prove that his appetite for a fight was undimmed.
Just hours after the statement was published, Greenberg's lawyers hit back with an emphatic statement that called the AG's release "false and misleading" as they claimed that his case had "totally collapsed at trial".
It was the latest twist in a dispute over two allegedly sham reinsurance transactions that played a role in forcing AIG to restate its accounts by around $2bn and subsequently settle a dispute with the US Securities and Exchange Commission (SEC) and other agencies for $1.6bn.
In relation to the deals, five former AIG and Gen Re senior execs found themselves facing years in jail, while the Berkshire Hathaway subsidiary agreed to pay a group of AIG shareholders a total of $72mn to settle fraud claims.
The Attorney General's case, which was brought in 2005, attempted to prove that Greenberg and AIG's then-chief financial officer Howard Smith had "personally engineered" the two transactions, which it called "major frauds".
The accusations date back to 2000 when Greenberg allegedly put in a call to then-Gen Re CEO Ron Ferguson to arrange a deal that would appear to bolster AIG's diminishing loss reserves.
It followed a "dramatic" reduction in the group's share price after it had announced a $59mn fall in loss reserves in its third quarter earnings for that year. The revelation caused analysts to suggest the decline in loss reserves when premium was increasing could be a sign that the insurer was "managing earnings", according to a pre-trial memo filed by the AG.
Warren Buffett had noted in an earlier deposition that Greenberg had a "fairly thin skin" with regard to analysts' comments about AIG, which the Berkshire Hathaway CEO characterised as the executive's "baby".
In response to the analyst comments, Greenberg allegedly asked Ferguson to strike a deal that would have seen AIG reinsure an unspecified $600mn Gen Re portfolio and earn $500mn in premium, which in turn would have bolstered the insurer's loss reserves.
But in a press conference on Monday morning in response to the AG's statement on Friday, Greenberg said: "The portfolio which Gen Re had ceded to AIG had been ceded before to someone else, another company.
"You can't reinsure the same thing twice," the executive explained. "Had we known that, obviously it wouldn't have happened."
The AG had alleged that by entering into the deal with Gen Re and characterising it as insurance, AIG avoided reporting additional declines in its loss reserves for the following six months.
It said the insurance giant booked a $106mn increase in loss reserves for the fourth quarter of 2000, which would have been a $144mn reduction had it not been for the transaction.
Asked at Monday's press conference where he draws the line between doing something for appearances and deceiving investors, Greenberg said: "Deceiving investors never enters into our mind.
"But you have an obligation to ensure that shareholders are not being punished because something was misunderstood," the executive went on.
"The finite reinsurance transaction would have taken care of whether reserves were going up or down," he said. "And as a matter of fact before I even called Gen Re the shares had recovered."
While all this was going on another transaction was being worked on, which was allegedly intended to mask underwriting losses in the insurer's misfiring auto warranty book that had been run by Greenberg's son and current Chubb CEO Evan Greenberg.
The AG said that by 1999 the book's performance was a "disaster" - running at a 200 percent loss ratio, with projected losses of $420mn on the $210mn portfolio.
When Greenberg found out, he allegedly became "extremely angry and irate" and insisted on taking personal and direct control of the book.
At that point the then-AIG chief, who is known for his fierce belief that an insurance company should be judged solely on its underwriting performance, allegedly looked to mask the losses as poor investments.
He instructed Joe Umansky, who was responsible for the insurer's special reinsurance division, to find a solution that would "blunt the anticipated adverse loss development" on the unearned premium run-off, according to a memo submitted in evidence during the trial.
After investigating the options, the executive came to an agreement with Capco, a dormant Barbados reinsurance subsidiary of Western General Insurance, which put $1mn into the carrier - allegedly paid for by AIG.
AIG then pumped another $189mn into the reinsurance vehicle, partly through three Swiss individual investors who received loans from the insurer for their contribution to the new reinsurer's reserves.
Finally, the insurance giant paid a $20mn premium to reinsure the poorly performing auto warranty book, bringing the total capital to $210mn - the value of the projected loss.
A recourse loan offered to the investors in the vehicle was tied to the performance of their shares in the newly capitalised reinsurer, the value of which diminished as the underwriting losses developed.
But, according to Smith when he gave evidence at the trial, the vehicle was wound down prematurely in 2002 after AIG grew concerned by the increased attention paid to special purpose vehicles in the wake of the Enron scandal.
Speaking on Monday, Greenberg said he was unaware that the accounting had been inaccurate.
"When you run a company as large as AIG, once you've agreed you're going to do something, you delegate that to other people," he said.
"You can't sit around and do the same thing thousands and thousands of times."
Questions about the Gen Re and Capco transactions rose to a crescendo in 2005 when then-AG Eliot Spitzer mounted a case against Greenberg and AIG as part of his crusade against the insurance industry.
Greenberg had little choice but to give up his position as CEO and retire from the company after he decided to exercise his Fifth Amendment right not to give evidence as part of Spitzer's investigation.
Soon after, in May 2005, AIG revealed that accounting errors and "inappropriate transactions" had caused it to overstate its book value by some $2.7bn, having identified "certain control deficiencies" under the recently departed management.
Following the restatements, the SEC - along with the Justice Department, and the New York State Attorney General and Superintendent of Insurance - said in February 2006 that it was filing charges against AIG for allegedly committing securities fraud in relation to the two sham transactions.
In a settlement reached in 2006, AIG agreed - without admitting or denying the allegations - to pay more than $1.6bn to resolve the claims, which included accusations of improper accounting.
At the time, the director of the SEC's enforcement division, Linda Chatman Thomsen, said: "This important settlement arose out of our industry-wide investigation into the misuse of finite insurance and reinsurance.
"While this settlement concludes our investigation of AIG, our investigation continues with respect to others who may have participated in AIG's securities laws violations."
AIG vice president Christian Milton, along with Ferguson and three other Gen Re execs, were the next to fall foul of investigations related to the transactions.
In 2008, after two years of legal wrangling the former executives were convicted of fraud and told that they faced prison sentences of up to four years. But the criminal convictions were subsequently overturned due to irregularities around the conduct of the cases and charges were dropped after they entered into plea bargains.
A year later Greenberg and Smith settled a dispute with the SEC for a combined $16.5mn, without admitting or denying the allegations. They had been accused of making "material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets".
During the intervening years, the case first brought by Spitzer continued, surviving eight pre-trial appeals - including one that made it to the US Supreme Court - and three attorneys general.
But Greenberg has not restricted himself to the defendant's' side of the court during that period. The executive has proven time and again that he will not hesitate to take legal steps to confront his foes.
He sought redress against Spitzer long after the man dubbed the "Sheriff of Wall Street" had left the AG's office in 2006, risen to become New York governor in Albany in the same year, and resigned from the latter office amid a prostitution scandal.
Greenberg promptly sued Spitzer for defamation after the former AG made public comments in 2012 that asserted, among other things, that the ex-AIG CEO had perpetrated a fraud, had run AIG as a "corrupt company" and had been prosecuted by the US Justice Department.
The latter claim by Spitzer, in his book entitled Protecting Capitalism, strongly suggested that Greenberg had faced allegations of criminal behaviour - a false claim, and one Spitzer later retracted, as the pursuit of civil charges had only involved the US SEC at the federal level.
In court proceedings in 2014, a New York Supreme Court judge in Putnam County, where Greenberg brought his defamation claims, dismissed most of the complaints against Spitzer. But he let two stand.
The first was Greenberg's claim that he had been defamed by Spitzer's fraud allegation, which was made in a number of venues including national TV broadcasts by CNBC; the second was that Spitzer implied that by suggesting a Justice Department role, that Greenberg had been suspected of criminal acts.
Spitzer may or may not have made similar comments while still in office as New York's top prosecutor. But he would have been immune to Greenberg's legal weapons at the time because of the office he held.
"The defamation lawsuit against Eliot Spitzer is for statements he made after he left the office of attorney general," Greenberg's lawyer David Boies said yesterday. "The law is that no matter how egregious the statement, you can't sue an attorney general for things they say while they are attorney general."
Fighting the Fed
And in 2011, three years after the US Treasury and the Federal Reserve launched a rescue of AIG from the imminent threat of bankruptcy in September 2008, Greenberg's Starr International sued the government and the banking regulator, claiming it was illegal to take AIG equity in exchange for bailout loans.
The legal action accused the Federal Reserve of a breach of fiduciary duty and denial of equal protection under the law. Both claims were dismissed and that action was upheld on appeal.
Starr also accused the US government of either taking something of value without providing just compensation, or of committing an illegal exaction. That case was brought in the US Court of Federal Claims, which backed the exaction theory and ruled that the Federal Reserve's acceptance of AIG equity for the loan was unauthorised, according to an appeal brief filed by the US in 2015.
The government has appealed the ruling, which did not provide any compensation to Starr. It claimed that letting the judgment stand would imperil the Federal Reserve's ability to act in future emergencies and that the decision had misread the law authorising the Federal Reserve's actions in such circumstances.
Starr has appealed the claims court decision regarding compensation, Boies said yesterday.
"The trial court ruled that the confiscation of the shareholders' equity was unlawful but did not award damages," the lawyer said. "We argued the case several months ago and we're waiting for a decision from the Federal Circuit Court of Appeals."
Greenberg's settlement with the AG last week saw him pay $9mn and admit that he "initiated, participated in and approved" the two transactions , but in the press conference yesterday he denied this amounted to fraud.
The statement was the first time Greenberg had acknowledged that it was correct for AIG to restate its accounting based on the Gen Re transaction.
"As a result of these transactions, AIG's publicly filed consolidated financial statements inaccurately portrayed the accounting, and thus the financial condition and performance for AIG's loss reserves and underwriting income," it said.