American International Group Inc., the world’s largest insurer, has filed a lawsuit in New York Supreme Court against former Chief Executive Hank Greenberg and six other former directors and officers. The defendants are accused of breaching their fiduciary duty. The lawsuit marks another chapter in a complicated three-year battle between the insurer and its former chief who left the company in the midst of an accounting scandal.
AIG alleges in the complaint that Greenberg, former Chief Financial Officer Howard Smith and five others breached their fiduciary duty through “misappropriation of a special block of AIG shares worth approximately $20 billion in 2005.” The shares were held by Starr International Co. Inc., a company that had had close ties with AIG, owning a large block of shares for the purpose of protecting the insurer against hostile takeovers, and to fund compensation for current and future AIG employees. Starr, which is now controlled by Greenberg, is still a large AIG shareholder. This suit is separate from an earlier action in which AIG is effectively seeking to have all shares held by Starr International that were allocated for future compensation of AIG employees placed in a trust controlled by current AIG executives.
AIG contends in the New York litigation that the defendants had a fiduciary duty to preserve, protect and use the stock acquired by Starr International for the benefit of AIG. Allegedly, the defendants breached that duty by causing or participating in the removal of AIG managers from Starr’s board and by the cancellation of the future deferred compensation for AIG, among other charges.
Greenberg left AIG in 2005, but he has retained control of Starr International, running the company as a private investment vehicle. According to Reuters, Starr’s 9.7% stake in AIG makes it the insurer’s largest shareholder. The complaint also names Edward Matthews, Ernest Stempel, L. Michael Murphy, John Roberts and Houghton Freeman, all of whom are either former officers of AIG companies or ex-directors, and are voting stockholders of Starr International. Interestingly, some are still honorary directors of AIG. The new lawsuit was filed by AIG after individual defendants refused to sign an agreement that would have effectively waived the three-year statute of limitation, which would have extended the time for filing suit.
Source: Insurance Journal and Reuters
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