ALBANY, N.Y. – New York’s attorney general can continue his legal effort to bar two former American International Group Inc. executives from the securities industry and forfeit any improperly gained profits, the state’s highest court ruled Thursday.
The Court of Appeals for the second time refused to dismiss the lawsuit originally filed in 2005 by then-Attorney General Eliot Spitzer, ruling it should go to trial.
The suit claims ex-AIG chief executive Maurice “Hank” Greenberg and ex-chief financial officer Howard Smith had engaged in fraudulent reinsurance transactions to conceal from investors a deteriorating financial condition.
AIG itself resolved state charges as part of a $1.64 billion agreement with regulators in 2006. The insurance giant was bailed out by the federal government in the 2008 financial crisis.
Greenberg and Smith settled related federal Securities and Exchange Commission complaints without admitting wrongdoing in 2009.
Their attorneys challenged the state lawsuit, arguing that New York’s Martin Act against securities fraud authorizes neither a permanent industry ban nor disgorgement of profits, and that releases from other settlements barred further financial forfeit.
“As we have previously stated, in an appropriate case, disgorgement may be an available ‘equitable remedy distinct from restitution’ under the state’s anti-fraud legislation,” Judge Leslie Stein wrote. “Moreover, as with the attorney general’s claim for an injunction, issues of fact exist which prevent us from concluding, as a matter of law that disgorgement is unwarranted.”
The court rejected another dismissal motion two years ago, concluding there was sufficient fraud evidence for trial.
Greenberg and Smith issued statements saying they disagreed with the ruling and that the court failed to address one of their main arguments, that the belated attempt at disgorgement is barred by the court’s 2008 ruling in another case.
Greenberg said he’s considering his options, that Thursday’s decision “flies in the face” of both court precedent and federal law. Smith said he’ll continue to defend himself vigorously.
Attorney General Eric Schneiderman, who inherited the case, said the ruling will let the state seek to recover bonuses Greenberg and Smith earned while committing their alleged fraud. “We look forward to demonstrating that Mr. Greenberg and his associates orchestrated two major frauds that caused massive losses to AIG’s shareholders,” he said.