New York state Attorney General Eliot L. Spitzer will not seek criminal charges against Maurice R. "Hank" Greenberg, but the former head of insurance giant American International Group Inc. could face new civil allegations stemming from stock trades made at the end of his 37-year reign at AIG, a spokesman for Spitzer said.
Since Greenberg resigned as AIG chairman and chief executive in March, he has faced criminal and civil investigations by several state and federal law enforcement agencies and regulators. Investigators are exploring, among other things, whether AIG under Greenberg used improper accounting maneuvers to exaggerate the company's financial strength, and whether Greenberg personally ordered improper purchases of AIG stock to prop up the share price.
Yesterday, Spitzer spokesman Darren Dopp said the attorney general would not pursue criminal charges against Greenberg, a decision he said had been made in May, when Spitzer's office filed a civil complaint against Greenberg, another former AIG executive and the New York-based company itself.
"We did that back in May when we first announced our complaint," he said. "That represented a decision that the case was best pursued in the civil courts."
As attorney general, Spitzer has broad authority to bring both criminal and civil charges in fraud cases.
The Wall Street Journal, citing unidentified sources, reported Friday that Spitzer wouldn't pursue criminal charges.
A spokesman for Greenberg's lawyers could not be reached. A spokesman for AIG declined to comment.
Dopp said the attorney general's office was considering amending the complaint to include allegations that Greenberg ordered improper stock trades. Included as part of a preliminary statement in Spitzer's civil case, the complaint alleged that in February, Greenberg called one of AIG's traders to order him to buy stock with the company's money, saying, "I don't want the stock below $66, so keep buying."
The preliminary statement said Greenberg called back to urge the trader to keep buying after 3:50 p.m., past a cutoff imposed by federal securities rules on company share buybacks. The rules are designed to prevent companies from manipulating the daily closing price of the stock, a practice known as marking the close.
The complaint said Greenberg's personal wealth was closely tied to AIG shares and that he was "intensely focused on the daily movement" of AIG's share price.
Prosecutors considered the stock trading allegations a potential criminal case in part because investigators had obtained tapes that captured Greenberg ordering the trades.
Currently, the civil complaint includes allegations that Greenberg, former chief financial officer Howard I. Smith and the company misled investors and regulators by engaging in illegal transactions that inflated the size of the insurer's reserves, disguised underwriting losses as capital losses and created false underwriting income.
Greenberg and AIG still face criminal investigations from federal prosecutors on at least two fronts.
In New York, federal prosecutors are exploring possible criminal charges related to the stock trades, according to documents AIG filed with the Securities and Exchange Commission.
And federal prosecutors at the Justice Department in Washington and in the Eastern District of Virginia also are investigating AIG's use of an insurance product known as finite risk reinsurance, which has been used by some public companies to smooth earnings and make their books look better.
The center of that investigation is a $500 million finite reinsurance deal conducted in 2000 and 2001 between AIG and General Re Corp., a unit of Berkshire Hathaway Inc. Investigators are exploring whether the deal improperly inflated AIG's reserves. In June, two former General Re executives pleaded guilty to conspiracy to violate federal securities laws in connection with the deal and agreed to cooperate with prosecutors. That investigation continues.