Marketplace Scratch Pad

Jury rules against AIG

Scott Jagow Jul 7, 2009

You might remember about a month ago, I posted something on a federal court case involving AIG. AIG was trying to seize funds from a charitable foundation because it said that money was originally intended for compensating AIG employees, and the company deserved it back. The jury didn’t agree.

As I said in the original post… in the 1970’s, CEO Hank Greenberg and some of his co-founders set up an offshore piggy bank and seeded it with their own shares to build up a nest egg for retiring executives at AIG. But when Greenberg left in 2005, most of that money was transferred to the Starr International Foundation, which has passed it along to charities.

But here’s what the New York Times reports today.

In what was considered an advisory decision, the jury found that the investment firm run by Mr. Greenberg did not have to reimburse A.I.G. for shares removed from a retirement bonus fund.

Federal District Judge Jed S. Rakoff said he would issue a final ruling by the end of August. The judge could still reverse the jury.

The decision in the case came just a day after the two sides gave their closing arguments, and Mr. Greenberg heard himself described as either a brazen liar or a generous and law-abiding businessman.

In my original blog entry, Joe Norton, AIG’s Director of Public Relations, posted these comments:

Mr. Greenberg will finally have to explain in open court why he caused Starr International Company, Inc. (SICO) to abscond with 290 million shares of AIG stock after he was forced out of the company for his refusal to cooperate with an accounting investigation. From 1970 to Greenberg’s ouster in 2005, SICO was the compensation trust for AIG’s employees. The evidence at the trial will show that during his tenure as AIG’s CEO, Greenberg personally and repeatedly promised that SICO’s AIG shares would always be used only for the purpose of compensating current and future AIG employees.

Patrick Dorton, a spokesman for Starr International, wrote this in the comments section:

The issue presented is very simple: if AIG prevails at trial, it has said that it will use this money to reward its most senior executives — the very same people who have driven AIG into the ground and made it a ward of the state. If Starr International prevails, the money will be preserved and used for charitable purposes, as Starr International’s shareholders always intended.

As the Times says, today’s verdict isn’t final, but it appears likely Starr International will prevail. Just thought a follow-up was in order.

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