Hank Greenberg, the long time leader of insurance giant AIG, is reportedly suing the company as he believes mismanagement and even fraud have cost him $2 billion personally. The financial media has jumped on this story with vigor as it purportedly entails anger, greed, and betrayal. CNBC’s Squawk Box said yesterday,
“Former AIG CEO Hank Greenberg is now suing the embattled company. He’s accusing the company of securities fraud. Yesterday, AIG posted that unbelievable loss, $62 billion. Greenberg’s lawsuit claims that AIG’s material misrepresentations and omissions led him to buy shares in his deferred compensation participation plan.”
Greenberg lead AIG for more than 40 years until he came under pressure to leave the company because of fraud charges from the New York Attorney General, Elliot Spitzer. He now claims that he was encouraged to buy stock in AIG at more than $50 per share and was mislead by the current management as to just how bad the collateralized debt on AIG’s balance sheet would turn out to be. The dispute arose from an investor conference in December of 2007, when the company’s stock was trading in the high $50’s. Greenberg claims that management seriously downplayed the risks to the company and shareholders, and that their auditors had already told AIG about a “material weakness”.
As Mr. Greenberg was being interviewed this morning he took one shot after another at AIG’s management team, and at one point he mentioned that never once while he was running the company did he sell shares but the new management is selling shares at $.40. This divorce is only going to get uglier. Clearly, he has a lot invested in AIG both financial and emotionally. However, how much could have really changed between the time Greenberg was run out of the company to December 2007? Are we expected to believe that AIG did all of their risky derivative activity in the two and a half years between Greenberg’s departure and the investor conference? That seems highly unlikely.
The fact remains that the company is fundamentally broken. They lost an unreal $61.7 billion in the fourth quarter. Think about that, by my quick calculation the company lost more than $476,000 each second of every day in the quarter. Even if his claims are held up in court, what is Greenberg expecting to gain from this? Oh that’s right, the taxpayers just issued another $30 billion loan to the company.