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  • Tom Holman

Appellate Court Affirms the Denial of Greenberg's Motion for Summary Judgment in Fraud Case

In an April 16, 2015 decision by the New York Appellate Division for the First Department, People v Greenberg, 2015 N.Y. App. Div. LEXIS 3206 (1st Dep't Apr. 16, 2015), the Court unanimously denied Greenberg’s motion for summary judgment in a decade old fraud case.

Greenberg is the former chairman and chief executive officer of the American International Group (“AIG”). On May 26, 2005, Attorney General Eric Schneiderman decided to pursue the civil fraud case against Greenberg and Howard Smith, AIG’s former chief financial officer. The complaint alleged that Greenberg and Smith “routinely engaged in misleading accounting and financial reporting” while working at AIG from the 1980’s until 2005. The original complaint cited nine improper transactions but only two have remained at issue. One transaction concerned an arrangement in 2000 with General Re, a reinsurer, to boost falling reserves at a time when their decline had generated concern among securities analysts. The other alleged transaction was that AIG used an offshore shell company named CAPCO to mask problems in AIG’s car-insurance business. It is also alleged that Greenberg and Smith received improper bonuses from each of these transactions.

Since the filing of this action in 2005, several settlements have occurred. In 2006, AIG agreed to pay $1.6 billion to resolve fraud claims stemming from the two challenged transactions. And, in 2009, Greenberg agreed to pay $15 million (Smith, $1.5 million) to the Securities and Exchange Commission to settle related charges without admitting or denying guilt. On April 10, 2013, Greenberg and Smith received federal-court approval to settle for $115 million all shareholder-related claims linked to the General Re and CAPCO transactions.

Due to the settlements, the state dropped all claims for monetary damages and instead demanded equitable remedies which would prevent Greenberg and Smith from serving in management or on the board of a public company, or working in the securities industry. On May 24, 2014, Greenberg and Smith filed a motion for summary judgment in the Supreme Court of the State of New York in the County of New York and argued that the Attorney General lacked standing to seek permanent injunctive relief under the Martin Act. Judge Charles E. Ramos denied this motion in its entirety. Judge Ramos held that “[t]he Martin Act expressly confers the Attorney General with authority to seek a permanent injunction barring a defendant from ‘selling or offering for sale to the public within this state…any securities issued.’” Judge Ramos went on to state that “officer and director bars are an appropriate remedy in public enforcement actions against corporate executives who engage in fraudulent securities transactions, including under the Martin Act.”

Greenberg and Smith appealed Judge Ramos’ decision to the Appellate Division for the First Department. In its decision, the Appellate Division affirmed the denial of Greenberg’s motion for summary judgment holding that the claim remain legally viable despite the settlements reached by AIG and its shareholders in 2013. The Appellate Division held that Greenberg and Smith “failed to demonstrate conclusively that the claim for a permanent injunction under the Martin Act was not warranted under the circumstances, which at least raised issues of fact as to the imminence of harm.” The Court also found that “[t]he existence of a federal consent judgment imposing a similar but more lenient injunction, and not providing for any acknowledgment of guilt does not preclude the injunction sought here by the State.”

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