Arthur R. Lehman, L.L.C.

Executive's fraud settlement raises important issues

The former chief executive of a major insurance company, American International Group, Inc., has resolved civil allegations filed against him by the attorney general of New York, which accused the executive of fraud and misrepresentation.

The former executive's settlement requires him to pay back $9 million he earned as bonuses related to his performance during his tenure at AIG. In exchange, New York has apparently dropped its request for an order banning the executive from working either as an executive officer in a publicly traded company or in the securities trade.

This case arose when the state accused the man of collaborating with another executive, the former chief financial officer of AIG, in order to alter accounting records so as to reflect fewer claim payouts than the dollar actually paid. This alleged fraud meant stakeholders in the company thought the company had hundreds of millions dollars more available than it actually did.

According to the New York Attorney General's theory of the case, this conduct came to a head during the Great Recession, when AIG had to accept $180 billion in bailout funds in order to stay afloat. The former chief executive continues to deny any wrongdoing but said he only agreed to the settlement because he agreed he would respect the mediator's recommendations. AIG itself has also had to settle fraud allegations.

Although not every economic tort involves millions and billions of dollars, any New York business of reasonable size can be seriously damaged by the unscrupulous actions of any executive or other manager. In such cases, a private civil fraud suit may be an aggrieved party's only option.

Source: U.S. News & World Report, "NY state settles fraud lawsuit vs. former AIG CEO Greenberg," Frank Eltman, Feb. 10, 2017.

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