Wilmington, Del. — After six years of litigation with trial scheduled to start September 15, leading shareholder and corporate governance law firm Grant & Eisenhofer, Wilmington, Del., announced it has reached a $115 million settlement on behalf of AIG with the insurer’s former Chairman and CEO Maurice “Hank” Greenberg and three other former AIG executives who were accused of conducting an extended series of transactions expressly engineered to siphon money away from the company and into private affiliates they controlled.
The recovery, which includes a $29.5 million payment from Greenberg and the other defendants, is the largest settlement of a derivative suit in Delaware Court of Chancery, more than doubling a $50 million settlement in a case on behalf of Hollinger International in 2006, according to Grant & Eisenhofer.
In addition to Greenberg, payments will be made from AIG’s former CFO Howard Smith, along with the company’s former Vice Chairman of Investments Edward Matthews and former Vice Chairman of Insurance Thomas Tizzio. All four men also had been executives of C.V. Starr & Co., a privately held AIG affiliate controlled by Greenberg and other AIG executives.
The remaining $85.5 million will be covered by director’s and officer’s liability insurance.
The action, brought in 2002 by Teachers’ Retirement System of Louisiana, alleged that Greenberg and other AIG executives and directors breached their fiduciary duties by directing insurance business worth hundreds of millions of dollars in commissions to C.V. Starr, despite the fact that AIG could easily have generated the business for itself and, in fact, had been doing so, says Grant & Eisenhofer.
During the discovery phase of the litigation, it also was revealed that Starr had been using AIG employees and other AIG resources to perform extensive work for which AIG was paying Starr commissions.
Starr and its affiliates, currently run by Greenberg and other former AIG executives, are AIG’s largest shareholders. When the lawsuit was first brought, Starr had regularly awarded tens of millions of dollars in compensation to AIG executives and served as a long-term incentive pool for top AIG executives and employees. Plaintiffs alleged that the resulting self-dealing created a massive compensation pool for this small coterie of beneficiaries. Greenberg, while not denying this charge, claimed the executive compensation paid by Starr actually created a benefit to AIG by reducing the amount of compensation that AIG had to pay these executives.
When the case began six years ago, Greenberg was still in charge at AIG. The global insurance and financial services giant fought the complaint until 2005, when Greenberg left AIG under a cloud of suspicion and the company was forced to issue large restatements of its public financials. In late 2005, AIG withdrew its motion to dismiss the case.
As the litigation proceeded, Grant & Eisenhofer attorneys deposed Greenberg for three days, and were prepared for an eight-day trial before Vice Chancellor Leo Strine, Jr. to begin next week. Grant & Eisenhofer also had filed a series of motions challenging the methodology and reliability of the defendants’ experts who were set to testify at the trial. Those motions were to be heard on Friday. The defendants agreed to the $115 million settlement.
“This is a hugely important settlement for shareholders, one that not only returns some of C.V. Starr’s ill-gotten profits to AIG shareholders, but also advances critical corporate governance goals,” says Stuart Grant, managing partner at Grant & Eisenhofer and lead counsel to plaintiffs.
Maureen Westgard, director of Teachers’ Retirement System of Louisiana (TRSL), notes that the combined efforts of Grant & Eisenhofer and TRSL not only achieved a record settlement amount, but also advanced key corporate governance goals. Westgard noted that the settlement’s requirement that the defendants personally pay more than 25% of the total amount makes clear that shareholders will not countenance self-dealing transactions by the company’s fiduciaries.
Source: Grant & Eisenhofer P.A.
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