RSSGrant & Eisenhofer, Lawyers for Teachers’ Retirement System of Louisiana, Announce $115 Million Settlement in Derivative Shareholder Suit against Former AIG Executives
Sep 12
Education, Finance Education, Financial Aid AIG, Allan Ripp, Catherine Pratinakis, corporate governance law, Cynthia Calder, David Straite, Delaware Court of Chancery, Edward Matthews, financial services giant, Howard Smith, insurance business worth hundreds, Insurance Thomas Tizzio, Jennifer Heisinger and associates, Joshua Spivak, Jr., Legal Issues, Leo E. Strine, liability insurance, Louisiana, Maureen Westgard, Maurice "Hank" Greenberg, Stuart Grant, the National Law Journal No Comments
After six years of litigation with trial scheduled to start September 15, leading shareholder and corporate governance law firm Grant & Eisenhofer announced that it has reached a $115 million settlement on behalf of AIG with the insurer’s former Chairman and CEO Maurice “Hank” Greenberg and three other former AIG executives who were accused of conducting an extended series of transactions expressly engineered to siphon money away from the company and into private affiliates they controlled.
The recovery, which includes a $29.5 million payment from Mr. Greenberg and the other individual defendants, is the largest settlement of a derivative suit in Delaware Court of Chancery, more than doubling a $50 million settlement in a case on behalf of Hollinger International in 2006.
In addition to Mr. Greenberg, payments will be made from AIG’s former Chief Financial Officer Howard Smith, along with the company’s former Vice Chairman of Investments Edward Matthews and former Vice Chairman of Insurance Thomas Tizzio. All four men had also been executives of C.V. Starr & Co., a privately-held AIG affiliate controlled by Mr. Greenberg and other AIG executives.
The remaining $85.5 million will be covered by director’s & officer’s liability insurance.
The action, brought in 2002 by Teachers’ Retirement System of Louisiana, alleged that Mr. Greenberg and other AIG executives and directors breached their fiduciary duties by directing insurance business worth hundreds of millions of dollars in commissions to C.V. Starr, despite the fact that AIG could easily have generated the business for itself – and in fact, had been doing so.
During the discovery phase of the litigation, it was also revealed that Starr had been using AIG employees and other AIG resources to perform extensive work for which AIG was paying Starr commissions.
Starr and its affiliates, currently run by Mr. Greenberg and other former AIG executives, are AIG’s largest shareholder. When the lawsuit was first brought, Starr had regularly awarded tens of millions of dollars in compensation to AIG executives and served as a long-term incentive pool for top AIG executives and employees. Plaintiffs had alleged that the resulting self-dealing created a massive compensation pool for this small coterie of beneficiaries. Remarkably, Mr. Greenberg, while not denying this charge, claimed that the executive compensation paid by Starr actually created a benefit to AIG by reducing the amount of compensation that AIG had to pay these executives.
When the case began six years ago, Mr. Greenberg was still firmly in charge at AIG and was widely regarded as one of the world’s most powerful business leaders. The global insurance and financial services giant fought the complaint until 2005, when Mr. Greenberg left AIG under a cloud of suspicion and the company was forced to issue large restatements of its public financials. In late 2005, AIG acknowledged the strength of the derivative suit, and withdrew its motion to dismiss the case.
As the litigation proceeded, Grant & Eisenhofer attorneys deposed Mr. Greenberg for three days, and were prepared for an eight-day trial before Vice Chancellor Leo E. Strine, Jr. to begin next week. Grant & Eisenhofer had also filed a series of motions challenging the methodology and reliability of the defendants’ experts who were set to testify at the trial. Those motions were to be heard on Friday. In the face of that risk, the defendants agreed to the $115 million settlement.
“This is a hugely important settlement for shareholders, one that not only returns some of C.V. Starr’s ill-gotten profits to AIG shareholders, but also advances critical corporate governance goals,” said Stuart Grant, managing partner at Grant & Eisenhofer and lead counsel to plaintiffs.
Maureen Westgard, Director of Teachers’ Retirement System of Louisiana, noted that the combined efforts of Grant & Eisenhofer and TRSL not only achieved a record settlement amount but also advanced key corporate governance goals that are highly valued by institutional shareholders. Ms. Westgard noted that the settlement’s requirement that the defendants personally pay more than 25% of the total amount makes clear that shareholders will not countenance self-dealing transactions by the company’s fiduciaries.
In addition to Mr. Grant, the G&E Trial Team consisted of Grant & Eisenhofer partner Cynthia Calder, senior counsel Jennifer Heisinger and associates Catherine Pratinakis and David Straite.
Note: Grant & Eisenhofer P.A. represents institutional investors and shareholders internationally in securities class actions, corporate governance actions and derivative litigation. The firm has recovered nearly $10 billion for shareholders in the last five years and was named one of the Top 5 firms for shareholder recovery by Institutional Shareholder Services as well as to the National Law Journal’s list of Top Ten Plaintiffs’ firms for the past three years. For more information, visit www.gelaw.com
Allan Ripp 212-262-7477 arippnyc@aol.com
Joshua Spivak 510-849-1663 jspivaknyc@aol.com
Source: Grant & Eisenhofer