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AIG sues Greenberg over control of $20bn shares

Giant insurer American International Group (AIG) has taken legal action in an effort to seize $20bn of its own shares from the control of ousted former chief executive Maurice “Hank” Greenberg, according to reports last week (29 September) in the Wall Street Journal (WSJ).

The shares, representing 12 percent by value of the New York-based insurer, are held by Bermuda-headquartered vehicle Starr International Company (SICO), which operates as a deferred compensation vehicle for some 700 current and former AIG executives, with Greenberg as chairman and trustee.

But in a lawsuit filed in a federal court in Manhattan late last Tuesday (27 September), AIG demands that Greenberg relinquish his control of the investment, claiming that the shares had been set aside for the benefit of the insurer.

The action is a countersuit to litigation brought by SICO earlier this year which sought to secure property – including art and antiques – AIG refused to turn over to Greenberg following their acrimonious split in March this year over regulatory revelations of accounting irregularities.

In the claim, AIG argues it is entitled to the shares as there is a “longstanding agreement between AIG and [SICO] to retain and use such shares for the benefit of AIG and AIG employees”, quoting from the insurer’s 2001 annual report that the shares had been “set aside in a legal structure carefully designed to ensure that the core assets could not be invaded for personal use by future generations” of SICO owners, reported the WSJ.

The suit accuses Greenberg and fellow SICO directors of “unjust enrichment”, and says the shares would be placed into a “constructive trust on behalf of AIG”.

In response, Greenberg’s attorney David Boies countered that while AIG argues the claim is centred on a contract, “no where in the complaint do you see them identifying that contract”.

“In order to take over a $20bn company, you need to have more than the allegation that you’d like to own it. I’d like to own it. Everyone I know would like to own it. But I don’t, and they don’t and AIG doesn’t,” Boies is quoted as saying in the paper.

AIG has also this week revealed details of a new deferred compensation scheme, which mirrors its previous arrangements, minus the connections with SICO, resulting in its annual cost of around $100mn hitting the bottom line of the insurer.

In the Autumn issue of our sister publication IQ, we asked if the legendary Greenberg was paving the way for a surprise comeback, as he decides on the future path for SICO and CV Starr – a second compensation vehicle he controls, holding a further 1.8 percent of AIG stock.

The obvious route for the entities would be to become more active investors, IQ suggested, focussing on private equity, and potentially funding insurance start-ups. A second option would be a return to insurance, with CV Starr having already operated as an agency/broker on behalf of AIG, we argued.

But with regulatory investigations still to be resolved, and the prospect of lengthy legal wrangling over ownership, Greenberg watchers may have a while to wait for the return of the insurance legend.

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