A foundation headed by former American International Group chief executive Maurice Greenberg has accused the insurance company’s current CEO and CFO of misrepresenting multibillion-dollar losses in AIG’s portfolio of credit-default swaps. The alleged deception caused significant losses for the foundation, it alleged.
In a complaint filed in a New York state court, The Starr Foundation claims CEO Martin Sullivan and finance chief Steven Bensinger “fraudulently reassured” the charity in 2007 “that the risk of loss from its credit default swap portfolio was remote,” Bloomberg News reported. This “caused the Foundation to retain stock in AIG which it would have otherwise sold,” according to the charges laid out in court papers.
“AIG now admits its credit default swap portfolio lost $11.5 billion in value during 2007, which is billions more than AIG has previously acknowledged,” the complaint reportedly states.
Greenberg, ousted at AIG in 2005 by Sullivan, is chairman of the Starr Foundation, which makes donations for education, health care, and the environment.
AIG reported a $5.29 billion loss in the fourth quarter of 2007 due to write-offs related to the housing crisis. Bloomberg noted that Sullivan had reassured investors as recently as December that any drop in the value of holdings would be “manageable.” The foundation is seeking damages of at least $300 million.
In late 2005, then-New York Attorney General Eliot Spitzer accused Greenberg of unfairly enriching himself and other AIG executives in a series of transactions involving the Starr Foundation, established in 1955 by American International founder Cornelius Vander Starr and Greenberg.
In June 2006, Starr International, a Greenberg-controlled company that held a 12 percent stake in the insurance giant, sought a court order to force AIG to turn over notes and minutes of board meetings since February 9, 2005. Starr reportedly alleges that AIG mismanaged a $1.6 billion settlement with regulators the prior year.
The lawsuit invoked a Delaware law that allows shareholders to see corporate records if they suspect wrongdoing.
