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Thursday, 02 October 2014

Courting trouble

Time to pull the plug on NY's Hank Greenberg suit

It’s time to pull the plug on New York’s lawsuit against Hank Greenberg. The case accusing the former AIG boss of defrauding investors has already outlasted two of the state’s attorneys general. After losing a ruling Wednesday, a third should call it quits. His office is plenty busy pursuing financial-crisis cases and other scams. It doesn’t need this eight-year-old distraction.

The suit involves what seemed at the time to be innocuous reinsurance deals. But in 2005, then-Attorney General Eliot Spitzer contended they were illegal schemes to hide losses and inflate AIG’s insurance claim reserves. Though a judge at one point called the case “devastating,” it languished for years as Spitzer and his successor, now-Governor Andrew Cuomo, struggled to connect Greenberg with the alleged fraud.

On Wednesday, a court approved the former CEO’s settlement with AIG investors in a parallel federal lawsuit, making the state’s case essentially moot. With nothing to show after all this time, current Attorney General Eric Schneiderman ought to drop it.

He doesn’t have much to lose. Schneiderman has already put federal prosecutors to shame by suing JPMorgan last October in a multibillion-dollar mortgage security case. And as co-chair of a national mortgage task force, he’s touting more suits to come. Backing off a case that most people have already forgotten wouldn’t diminish his reputation for holding Wall Street’s feet to the fire.

A judge may force his hand in any event. Five years ago, a New York court ruled that the attorney general couldn’t pursue damages for victims of an alleged credit card fraud when a judge had already approved a class action settlement over the same scandal. The precedent probably means that Schneiderman’s lawsuit is toast. He may try to keep it alive by arguing that he can extract additional compensation, but that hardly seems worth the effort.

Greenberg, meanwhile, probably deserves a break. Litigation starts to look abusive after nearly a decade, depriving the former CEO of the certainty that the law requires. Besides, Greenberg has a lot on his docket. The 88-year-old recently doubled to $55 billion the size of his class-action lawsuit against the government over AIG’s 2008 bailout.

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Context News

A U.S. district judge in New York on April 10 approved a $115 million settlement between American International Group shareholders and former Chief Executive Maurice “Hank” Greenberg and others. The ruling ends a 2004 lawsuit accusing the defendants of misleading investors through an alleged insurance bid-rigging scheme and lying about an alleged accounting fraud that led to a $3.9 billion restatement by AIG in 2005.

Greenberg argues that the settlement precludes New York State Attorney General Eric Schneiderman from pursuing “duplicative damages” in a lawsuit his office filed on behalf of investors in 2005. Schneiderman, who opposed the April 10 settlement, inherited the case from his two predecessors, Eliot Spitzer and Andrew Cuomo. The New York Court of Appeals on April 30 is scheduled to hear arguments on whether Schneiderman’s case can go forward.

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