Spitzer Trains Biggest Guns on Greenberg

What the complaint does do is spend considerable time dealing with the behind-the-scene machinations at AIG that led to the its now famous reinsurance deal with General Re, a subsidiary of Berkshire Hathaway(BRKA), as well as a series of transactions with three offshore reinsurers that AIG secretly-controlled.

What comes through loud in clear is that Greenberg and Smith allegedly were at the center of all these deals.

In the Gen Re deal, for instance, the complaint describes how Greenberg called a former Gen Re executive in November 2000, seeking to arrange an insurance transaction that would bolster AIG's reserves without AIG risking a potential payout. It outlines a series of steps, allegedly coordinated by Greenberg, to make it appear that Gen Re had approached AIG about entering into a reinsurance deal -- and not the other way around.

"The entire AIG-GenRe transaction was a fraud,'' the complaint says. "It was explicitly designed by Greenberg from the beginning to create no risk for either party.''

Spitzer contends it was Greenberg who gave the marching orders to underlings, telling them to "find individuals who would mask AIG's control of Capco,'' one of the offshore reinsurers AIG secretly controlled. The complaint alleges AIG secretly used Capco to hide $210 million in underwriting losses in its auto insurance division by transferring them to "an off-balance sheet entity where AIG investors could not see them.''

All the while, Spitzer contends, Greenberg and Smith were kept apprised of the Capco scheme. "The transaction was designed from the beginning to lose money for Capco, a fact known to both Greenberg and Smith,'' the complaint says.

Other AIG executives also appear in the complaint as supporting players in the frauds engineered by Greenberg and Smith, such as Vincent Cantwell, a vice president and employee in the company's comptroller's office, who is on leave from the insurer. Cantwell, under orders from Smith, allegedly bolstered AIG's reserves by $100 million in late 2000 and early 2001 by making "fictitious'' end-of-quarter adjustments

The most notable supporting player is Joseph Umansky, a top AIG executive with whom Spitzer has cut a deal with in return for his testimony. The complaint refers on a number of occasions to potentially incriminating testimony from Umansky.

One passage in the complaint notes that Umansky has testified that Greenberg and Smith "were aware'' that AIG had given insurance regulators misleading information about its interest in Union Excess Reinsurance, one of the offshore entities at the heart of the accounting scandal.

Spitzer repeatedly suggests Greenberg and Smith, who reportedly are the subject of a criminal grand jury probe, have a lot to hide. When questioned by regulators earlier this year, they "refused to answer, on the grounds that their answers would tend to incriminate them.''

But the complaint fails to allege any over-arching or sweeping fraud the likes of Enron or WorldCom.

Several defense lawyers suggest the filing of the civil complaint may be the opening salvo in the battle for a settlement with Greenberg. The former AIG executive might agrees to pay a hefty multi-million dollar fine and apologize for his conduct in return for avoiding criminal charges.

It's a strategy Spitzer has employed before in the mutual fund trading scandal, most notably with Richard Strong, the former mutual fund executive. Strong, the founder of the Strong Funds, paid a $60 million fine to settle charges he market timed his own funds, thereby avoiding criminal charges. Strong agreed to pay the fine, even as a grand jury began hearing testimony in a potential criminal case against him.

Spitzer's critics call the strategy "dollar justice.'' But for Spitzer, it's the way he likes to do business and it's a strategy that hasn't hurt him yet in the public's eye.

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