A federal judge ruled last month that New York Attorney General Eric Schneiderman can’t stop a $115 million settlement between American International Group Inc. shareholders and the insurer’s former chief executive and others. The New York Attorney General lacks standing to object to the settlement, U.S. District Court Judge Deborah Batts in Manhattan wrote in her decision. Judge Batts also denied the Attorney General’s request to intervene. The Judge will decide whether to approve the settlement reached in 2009 between shareholders and former AIG Chief Executive Hank Greenberg, former Chief Executive Howard Smith, other executives and Greenberg’s companies C.V. Starr & Co. and Starr International Co.
Judge Batts set a fairness hearing for April 10th and will decide whether the settlement should be approved. If she does approve it and no one appeals, it would effectively end a high-profile civil fraud case against Greenberg and Smith brought by the Attorney General’s office in 2005. Judge Batts wrote in her ruling that the New York Attorney General’s plea for the parties to re-negotiate raises concerns of “undue delay” and demands court action based on “sheer speculation and hotly-contested expert evaluations.” In August, General Schneiderman urged Judge Batts to reject the accord, saying an expert for shareholders made a math error that caused the payout to be too low. Lawyers for the shareholders responded that the error had no significant effect. They also said it was “entirely speculative” to expect the shareholders to fare better in new talks.
Lawyers for Greenberg, Smith and the Starr entities had also urged approval of the settlement. At issue is a 2000 transaction with General Re Corp., a unit of Warren Buffett’s Berkshire Hathaway Inc, which various government investigators have said allowed AIG to inflate loss reserves by $500 million without transferring risk. Schneiderman argued a math error by the expert caused the transaction to get no weight in the calculation of damages. Projections as to the actual amount of damages range from zero to $6.5 billion. The highest number was estimated by the New York Attorney General’s expert.
The case filed in New York state court against Greenberg and Smith was brought by former New York Attorney General Eliot Spitzer under the Martin Act, New York’s powerful securities fraud law. Greenberg and Smith are awaiting an appeal in the case at the state’s highest court. If the federal settlement is approved before the state case is decided, the “broad terms of the releases” would preclude New York pursuing its case on behalf of AIG shareholders, according to General Schneiderman. The case is In re American International Group Inc. Securities Litigation, U.S. District Court, Southern District of New York, No. 04-08141.
Source: Insurance Journal
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