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Greenberg fraud suit ‘must be tried’

A Supreme Court judge has ordered that a long-running fraud suit filed against former American International Group (AIG) CEO Maurice "Hank" Greenberg "must be tried" as he rejected Greenberg's attempt to dismiss the action.

The dispute centres around two infamous finite reinsurance transactions that Greenberg and the then-CFO Howard Smith allegedly negotiated to artificially bolster the insurer's loss reserves.

In 2005, former New York Attorney General Eliot Spitzer sued Greenberg and Smith for the transactions with Capco Reinsurance Co and General Re - a subsidiary of Berkshire Hathaway - which were allegedly used to help AIG hide losses.

Greenberg and Smith were accused of improper use of Barbados-based Capco as a shell corporation to remove over $200mn of auto warranty losses from the insurer's books.

In the latest ruling handed down last Wednesday (28 May), Judge Charles Ramos upheld an earlier decision by the Court of Appeals, saying the action "must be tried".

"This action has been pending for eight years, meandering through a series of seemingly never-ending motions and appeals," he said.

Greenberg and Smith argued that the Attorney General's office, which brought the action, does not have the power to prosecute. They argued that the office lacked the "standing" to have the pair banned from running companies.

But the judge said the court had "no difficulty" there was enough evidence to try both Greenberg and Smith for taking part in the alleged fraud.

"There is, no doubt, room for argument about whether the lifetime bans that the Attorney General proposes would be a justifiable exercise of the court's discretion," he said.

Matt Mittenthal, a spokesman for New York State Attorney General Eric Schneiderman, said: "Now that the motion has been dismissed in its entirety, we look forward to moving toward a trial that will finally offer the opportunity to hold Mr Greenberg accountable for his alleged role in a massive fraud."

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