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Attorney General’s Civil Suit Against Former Officers of AIG Survived Summary Judgment

In a full-fledged opinion by Judge Smith, the Court of Appeals determined the Attorney General’s civil suit, seeking equitable relief (based upon allegations of fraud) against two former officers of AIG, survived summary judgment.  The Court explained the nature of the suit as follows:

The Attorney General began this civil suit against AIG, Maurice Greenberg and Howard Smith in 2005. Until shortly before the suit was brought, Greenberg was the Chief Executive Officer, and Smith the Chief Financial Officer, of AIG. AIG has settled the case; Greenberg and Smith remain as defendants.

The Attorney General alleges that Greenberg and Smith violated section 63(12) of the Executive Law and Article 23-A of the General Business Law (the Martin Act), and committed common law fraud. The statutes on which the Attorney General relies are broadly worded anti-fraud provisions, prohibiting among other things “repeated fraudulent or illegal acts” (Executive Law § 63[12]), “persistent fraud or illegality” (id.), and “fraud, deception, concealment, suppression [or] false pretense” (General Business Law § 352-c [1] [a]). It is not disputed that the Attorney General is empowered to sue for violation of these statutes.

The gist of the Attorney General’s claim, to the extent that it is now before us, is that Greenberg and Smith participated in causing AIG to enter into a sham transaction with General Reinsurance Corporation (GenRe) in which AIG purported to reinsure GenRe on certain insurance contracts. The Attorney General asserts that the transaction transferred no real risk from GenRe to AIG, and therefore should not have been treated as an insurance transaction on AIG’s books; and that the transaction’s sole purpose was to increase the insurance reserves shown on AIG’s financial statements, thereby creating the impression of a healthy insurance business and bolstering AIG’s stock price.  People v Greenberg, et al, No 63, CtApp, 6-25-13

 

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