In July 2002, President George W. Bush gushed that the Sarbanes Oxley Act made the “most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt.”1 Adding to the hype, critics lambasted public prosecutors, including those at the Securities and Exchange Commission (SEC) and Department of Justice (DOJ), for allowing such abuses to fester into billion-dollar calamities.2
These prosecutors got the message. They escalated high-profile suits against esteemed corporate directors and prominent auditing firms.3 A symbol of the seismic shift in enforcement intensity occurred when 20 outside directors of Enron and WorldCom paid $31 million out of their own pockets, unreimbursed by insurance or indemnification, to settle suits against them personally.4 Directors across corporate America, including those exalted as independent, began to fear for their personal liability.
For auditors, a stunning result occurred when the DOJ filed criminal charges for obstruction of justice against the venerable independent accounting firm of Arthur Andersen, whose Houston office had signed off on Enron’s books. During the government’s investigation into it, two senior employees reinvigorated an ignored firm policy of destroying drafts of documents relating to the work. For that, the government indicted the entire firm, then employing 85,000 people and earning annual revenue of $10 billion, and won a fine of $500,000. Though a unanimous U.S. Supreme Court eventually overturned that result,5 by then the prosecutorial enthusiasm had destroyed the firm.
When Sarbanes-Oxley was passed, Eliot L. Spitzer was the attorney general of New York, with his sights set on the governor’s mansion. As attorney general, Spitzer drew on an obscure New York law, the Martin Act, which Greenberg calls “a legal weapon of mass destruction,” at least when in the wrong hands.6 As Spitzer portrayed the Martin Act, businesspeople can be liable for wrongdoing by employees without any finding that they actually knew about it at the time it was occurring. This reading would expose people to enormous and uninsurable damages in lawsuits brought by the New York attorney general. If a court agreed with that view of the law, all senior executives in New York (and possibly elsewhere) would face claims that could run to the billions of dollars, whether or not they were aware of misdeeds when they happened. In fact, however, no court had ever permitted the attorney general to do so—and for good reason, since the federal securities laws preempted this approach by requiring proof not only of knowledge of wrongdoing but of intent to deceive.7 That did not stop Spitzer from invoking the Martin Act in his campaigns, however, which one lawyer aptly tagged as the “Sword of Spitzer”—the “legal equivalent of King Arthur’s Excalibur.”8
AIG enjoyed a reputation for following conservative accounting in the insurance industry. That tradition continued through February 2005, when AIG’s auditor, PricewaterhouseCoopers (PwC), was completing its audit of AIG’s 2004 financial statements and controls. Auditors found them in order, as they had for decades. PwC always approved AIG’s financial controls, which Sarbanes-Oxley now required to be audited separately, entailing 50,000 hours of start-up work and costing AIG $12 million in the initial year.9 AIG held a conference call with securities analysts on February 9, 2005, reporting earnings of $11 billion despite a difficult year for the insurance industry. Asked about the prevailing regulatory environment—and the still hotly debated Sarbanes-Oxley Act10—Greenberg expressed concern that excessive regulation could put a drag on the U.S. economy. Greenberg also criticized overzealous prosecutors. Using a common tennis term, Greenberg challenged those who “look at foot faults and turn them into a murder charge.”
That afternoon, Spitzer turned to his computer to catch up on the day’s news. One site featured Greenberg’s remarks about prosecutors and “foot faults,” which the AG apparently took as a reference to him, as he was then probing certain insurance practices industry-wide. Spitzer instructed his staff to dispatch subpoenas to AIG and Greenberg demanding various documents. Spitzer had earlier received, but not acted upon, information concerning AIG and many other insurance companies involved in transactions with General Reinsurance Co. (or Gen Re), a company acquired by Berkshire Hathaway, Warren E. Buffett’s company, a few years earlier.
Virginia state authorities were investigating a medical malpractice firm that had gone bankrupt amid criminal activity that left two of its senior managers serving lengthy prison terms.11 Gen Re’s involvement with that firm led authorities to scrutinize numerous Gen Re reinsurance transactions that looked suspicious. Gen Re’s lawyers cooperated by providing documents not only to the Virginia authorities that requested them but to other authorities across the country, from the SEC to New York. Documents addressed numerous Gen Re deals involving “finite insurance,” a form of reinsurance used for a variety of accounting and operational reasons. AIG was one among many insurance companies that had entered into finite transactions with Gen Re.
After ordering staff to get the subpoenas out on the evening of February 9, Spitzer dashed across Lower Manhattan to the headquarters of Goldman Sachs to give a speech. Attending were Goldman’s elite, including Henry Paulson, its chairman, who would a year later become U.S. Treasury Secretary.12 Just before Spitzer rose to address the New York financial executives, a deputy entered and whispered in his ear that the subpoenas had been faxed. Moments later, during his remarks, Spitzer referenced Greenberg’s comments of earlier in the day, mentioning him by name to the assembled audience. Spitzer then threatened Greenberg and vaguely accused him of wrongdoing, declaring to the crowd: “Hank Greenberg should be very, very careful talking about foot faults. Too many foot faults and you lose the match.”13
For Spitzer, whose campaign for governor of New York in 2005–2006 was seen by Democratic champions as a prelude to a White House run,14 the prosecutorial environment of the post-Enron era was ripe. His campaign themes, as well as his attorney general speeches, were morality and righteousness, especially when challenging business practices. He assailed high-profile citizens, hounding prominent corporate leaders, in speeches like those at Goldman Sachs, in press conferences and on national television. The effect made him a regular in the media which branded him with such titles as “Top Cop of Wall Street” and “Sheriff of Wall Street.”15 By thus increasing pressure on targets, Spitzer induced high-publicity settlements, yielding favorable press without the need to conduct a trial, which takes time and can be lost.
Many were alarmed by Spitzer’s trial-in-the-media strategy, however, which sometimes threatened to undermine the presumption of innocence by vilifying his targets.16 They worried that some of Spitzer’s comments infringed on the rights of Americans to due process, such as the right to a fair jury trial. Such outbursts tend to inflame public opinion and may disparage the reputation of an innocent person. His comments often appeared to violate Spitzer’s duty as a prosecutor not to speak prejudicially about pending investigations17 or publicly condemn the accused.18 Writers at Forbes summarized the modus operandi: “The hallmark of a Spitzer trophy is victory by intimidation.”19
In 2001, Spitzer targeted investment banks for misleading securities research. When Merrill Lynch resisted Spitzer’s civil suit, he appeared on the CBS Evening News to warn of possible criminal charges, inducing the firm to settle the civil case.20 The business writer Peter Elkind said the following about Spitzer’s handling of the Merrill matter:
Spitzer had engaged in considerable saber rattling along the way—at one point telling the media, in a scary phrase that would become of one of his favorites, that Merrill’s behavior “bordered on criminal.” Yet no firm or individual involved in the research scandal would face criminal charges. While Spitzer would regularly wield criminal prosecution as a threat during his investigations, it was usually just a bludgeon. He viewed his power to criminally indict a big company as a weapon of mass destruction, too horrific to deploy except in the most extreme circumstances of corporate perfidy and defiance.21
In the fall of 2004, Spitzer aimed at insurance brokers for allegedly rigging the bidding process to channel customers into high-priced insurance contracts in return for fees. He filed a civil case against Marsh & McLennan, one based on assertions that conflicted with guidelines that New York insurance regulators had issued at Greenberg’s request.22 Again, he threatened criminal charges against the firm as a bludgeon, this time expressly to pressure its board to seek the resignation of its CEO, Greenberg’s son, Jeffrey, in order to avoid such charges.23 Spitzer declared, with “obvious anger,” that he would not negotiate with the Marsh board so long as Jeffrey remained chief executive.24 Such pressure, which was very controversial, forced the resignation of the CEO.25
Spitzer’s ultimatum in the Marsh & McLennan case expanded the circle of his critics to include corporate lawyers, such as Richard Beattie, the lawyer AIG’s outside directors had retained and would soon represent them in the coming drama over Hank Greenberg’s forced early resignation from AIG. In the Marsh case, Beattie regarded Spitzer’s move as overstepping the attorney general’s bounds into the realm of corporate governance.26 After all, appointing and removing a CEO are among the most important board decisions, a sacrosanct prerogative.27
One Spitzer victim who fought back was Kenneth R. Langone, the financier and philanthropist famous for helping to found Home Depot and for supporting the hospital at New York University medical school that bears his surname. He also served as chairman of the New York Stock Exchange’s board of directors. In 2004, Spitzer second-guessed the NYSE board’s decision to pay the NYSE’s chief executive, Richard Grasso, up to $190 million over five years, at a time when popular antipathy to high executive compensation was on the rise. Without producing evidence of wrongdoing, at a press conference, Spitzer charged Langone with hiding things from fellow directors. He then promptly called Langone’s lawyer to propose a settlement. Langone refused to take the bait. Spitzer would have to file the case, which lasted for several years, until New York’s highest court threw it out.28
Langone alleged that Spitzer’s case was politically motivated—intended to boost his position in the 2006 gubernatorial election. In response, Spitzer accosted a friend of Langone’s, Jack Welch, former head of General Electric. At the Democratic convention in Boston in July 2004, Spitzer cornered Welch and requested that he urge Langone to settle the case. According to Welch:
Spitzer got in my face, and he really wanted me to give Langone a message that he isn’t backing down. Spitzer was really angry. He got himself in a tizzy. He wanted to make sure Langone knew he was in the fight of his life and he was going to get him. Spitzer said he was so mad that he is going to put a spike through Langone’s heart.29
Spitzer also used the media to cajole other law enforcement authorities. In one instance, Spitzer publicly reproached his federal counterparts, asserting on 60 Minutes that he felt compelled to act because of the lackadaisical stance of the SEC.30 SEC officials did not appreciate Spitzer’s grandstanding, which mischaracterized its operating procedure.31 The practice at the SEC, as with most federal agencies,32 is to investigate possible cases carefully and confidentially to determine where they lead and then decide whether to proceed with public statements or not.33 To do otherwise would irresponsibly jeopardize reputations of innocent citizens. In contrast, Spitzer broadcast his cases as he went, making public statements about theories and inquiries he proposed to pursue before investigating. Nor did the SEC appreciate the substance of Spitzer’s behavior, which in one case it described as having “no legitimate basis.”34
In choosing cases, Spitzer favored targets where broad vague principles of criminal law could be used, as opposed to arcane regulatory tools.35 But while criminal cases often offer the prosecutor greater publicity value, selecting cases for those reasons can prove misguided. While Spitzer was occupied with securities research and compensation packages, Wall Street and many banks were manufacturing a housing and credit infrastructure that would soon bring the global financial system to the brink of collapse. The FBI warned in September 2004 that banks and other mortgage lenders were ginning up fraudulent loan applications and junk consumer housing credit was being packaged and peddled as high grade.36 Spitzer did not police those matters or pursue the wrongdoers, which may have seemed dull compared to the cases he brought, which had flash and publicity value.37
Spitzer’s interest in Greenberg, which seemed to be personal, arose as early as the fall of 2004, just around the time when Spitzer demanded the resignation of Jeffrey Greenberg as CEO of Marsh & McLennan. In September of that year, Dennis C. Vacco, Spitzer’s predecessor as attorney general then in private practice, represented an insurance broker which had become concerned about Spitzer’s attack on Marsh & McLennan. Vacco, who lost a close and bitter race against Spitzer for attorney general, wanted to discuss Spitzer’s inquiries. In Spitzer’s office at 120 Broadway in Lower Manhattan, Spitzer abruptly changed the subject from Marsh & McLennan and the industry by launching into a tirade about AIG’s Hank Greenberg. According to Vacco:
Mr. Spitzer was upset over statements [Hank Greenberg] had recently made, commenting on [Spitzer’s] “over prosecution” of minor infractions . . . . Mr. Spitzer gratuitously made several derogatory, deeply personal and highly inappropriate expletive-laden comments about [Hank and Jeffrey Greenberg] . . . . Mr. Spitzer stated that he planned “to take those mother fuckers down” . . . It was evident to me that Mr. Spitzer was motivated by some unexplained personal animus. I was very uncomfortable with the conversation and viewed it as unprofessional but did not say anything because Mr. Spitzer was very emotional about the topic and I did not want to compromise my client’s position.38
Spitzer claimed that his interest in AIG was not a drive for political publicity or a personal vendetta against Greenberg but was based on a finite insurance transaction that AIG had done with Gen Re five years earlier. He said it was invalid because it lacked sufficient risk to count as reinsurance—a stretch when accounting interpretations required as little risk as 1 percent to qualify as reinsurance. Spitzer based this conjecture on notes about the transaction that were among reams of other documents Gen Re provided to authorities. The notes referenced a telephone call of October 31, 2000, that Greenberg placed to Gen Re’s chief executive, Ronald E. Ferguson.39
Greenberg might have spent a total of 15 to 20 minutes on the entire transaction back in 2000 when it occurred. Right around the time of a lengthy overseas trip in October that year, Greenberg had held a meeting of senior colleagues to catch up on ongoing matters. This included updates on the financial results of the current quarter. Amid a wide-ranging discussion, some colleagues indicated a slight reduction in the level of reserves, by about $59 million at a time when total reserves were $24.9 billion. Most of that reduction, moreover, totaling $43 million, was due to unusually large claims paid by Trans Re, covering catastrophes it had insured against. Trans Re had become a majority-owned sub of AIG that quarter, and therefore its results, including these reductions in reserves, would be consolidated on AIG’s books.
The group noted alternative solutions, including entering into a finite cover transaction or terminating reinsurance policies it had written for others (called “commuting” in industry parlance). A finite cover transaction would not only address the reserve reduction but enable expanding AIG’s business at a relatively low cost. Commuting policies would regain the related premium income along with the reserves. The consensus was to find a finite deal. After discussing candidates to contact, they settled on Gen Re, because it was AIG’s largest reinsurer. In deciding who should make the contact, Greenberg said he knew Ferguson and would be happy to give him a call, which he did. Greenberg explained the proposal to Ferguson and senior AIG personnel and then had nothing else to do with the deal. As it turned out, AIG’s negotiators left the details up to Gen Re employees. They were to choose which exact risks Gen Re would transfer by identifying particular insurance policies the deal covered.
The Gen Re transaction had zero effect on AIG’s equity or net income. True, one of the affected accounts was the company’s “loss reserve liability” account, an important item in an insurance company’s financials. But AIG’s total reserves then were $24.9 billion, an amount 50 times the size of the Gen Re transaction. Nevertheless, Spitzer and the media spoke as if the Gen Re transaction had increased AIG’s income, but that is not how transactions such as this ever work. When an insurance company increases reserves upon underwriting new insurance, the increase in reserves is treated as an expense, a cost of doing business, which decreases income.
Despite such flaws, the DOJ, apparently in part due to Spitzer’s taunting, eventually made a criminal case out of it against Ferguson, five other Gen Re employees and one AIG employee—but not Greenberg.40 Early in the case, the government made plea deals with two Gen Re employees who agreed, in exchange, to testify about steps they took to make the deal fraudulent and to inculpate other targets. A court later found that the testimony of one of these had been inconsistent on important points, was “suspicious” and signaled to the government’s lawyers that they should “approach [his] revised recollections with a more skeptical eye.”41 During the hearing, one judge asked the government’s lawyer about how they saw Greenberg’s role in the case, and the lawyer explained that they had no evidence of his being involved at all—no e-mail, no phone calls, no substantial witness.42
The remaining targets, including Ferguson, maintained their innocence to the end. The case against them, which included a jury trial followed by an appeal, dragged out for six years. The government finally settled it when each employee paid fines ranging from $100,000 to $250,000.43 In settling, these employees did not admit guilt but did acknowledge that the deal turned out to be fraudulent, was unusual and was accompanied by “red flags” that they should have spotted in order to stop the deal rather than help see it through.44 Mistakes were apparently made, but not by AIG, and back in March 2005 a sense of proportion was missing, as Spitzer used his exaggerated conjectures about the deal to gain leverage against AIG and Greenberg.
On Monday, March 7, 2005, AIG’s audit committee met with PwC to review the company’s now-completed 2004 annual report. Carla Hills, the former U.S. trade representative and veteran AIG director and audit committee member, asked Barry N. Winograd, the PwC partner in charge of the AIG account, to see the schedule of disagreements between management and the auditors.45 Winograd shared this routine document that auditors prepare in their audits. On the list were assorted quotidian matters that, Winograd observed, involved professional disagreement over immaterial topics. Winograd said that AIG’s internal controls were effective and that PwC expected to issue a clean audit opinion.46
It was at this time that the threats Spitzer uttered at his Goldman Sachs speech, echoed in the press, reached AIG and its board, along with Spitzer’s subpoena.47 A faction of the outside directors—led by Zarb and joined by Aidinoff, Futter, and Holbrooke—swung into action. The faction, which did not include Secretary Cohen or Ambassador Hills, minimized contact with AIG management.48 Zarb and Aidinoff worked closely with Richard Beattie, the lawyer retained four months earlier to strengthen the directors’ hand in dealing with succession, which Spitzer’s regulatory inquiries would soon provoke.
Despite having criticized Spitzer for his handling of the Marsh & McLennan case, Beattie viewed many of Spitzer’s methods as effective, including his tactic of getting private law firms to conduct investigations for him.49 Throughout the next several months, AIG’s outside directors, led by Zarb and represented by Beattie, went to work for Spitzer, producing the fundamental shift in corporate governance that experts had warned about: no longer were the interests of AIG, its board, and Greenberg aligned. A faction of outside directors stood on one side and Greenberg on the other. In the balance hung the interests and fate of AIG and its shareholders—among them “widows and orphans,” public pension funds, and legions of loyal AIG employees.
Representing AIG was the law firm of Paul, Weiss, Wharton, Rifkind & Garrison (“Paul Weiss”). AIG’s general counsel had retained Paul Weiss on an earlier matter after canvassing a few other firms.50 One such firm, Cravath, Swaine & Moore, declined due to conflicts of interest, as it represented companies then engaged in insurance litigation against AIG.51 Paul Weiss stayed on to defend AIG against Spitzer, though it had close ties to him that posed some appearance of a conflict. Spitzer had once worked at Paul Weiss as an associate; one of Spitzer’s top prosecutors in the AIG matter was also a former associate of the firm;52 and many Paul Weiss partners supported Spitzer’s political campaigns and contributed money to his election efforts.53 (Later, a chief Spitzer deputy went to work there after her stint with him; and Spitzer later retained the firm when facing charges of criminal solicitation of prostitution and attempted evasion of federal banking laws.54)
Of course, it is not uncommon for a defendant to retain a lawyer thought to be close to the prosecutor. But increasingly over the course of the firm’s involvement with AIG, Paul Weiss lawyers stated in formal legal documents and internal e-mails that AIG’s interests were aligned with Spitzer’s and were not adversarial.55 This orientation seemed to reflect not only the cozy relationship between Paul Weiss and Spitzer but, consistent with the changing spirit of the times, a sense that AIG’s interests would be better served by capitulating to government demands rather than defending the corporation and its employees.
As for PwC, the auditing firm, its role is also complex. Auditors are retained and paid by a corporation, but intended to hold a public trust in assessing the veracity of financial reports. Auditors balance the fear of liability for breach of duty with the fear of losing a client, a balancing act whose delicacy became acute for PwC in early March 2005 as it sought both to cooperate with the authorities and keep its role as AIG’s auditor.56
All these forces came together during the week after the March 7 audit committee meeting where PwC reviewed AIG’s financials and indicated that it expected to deliver a clean audit opinion on them.57 Barely a month after Spitzer casually indicted Greenberg during his Goldman Sachs speech, Zarb called an emergency meeting of AIG’s outside directors for Sunday, March 13, 2005. The meeting was not held in Lower Manhattan at AIG’s 70 Pine Street boardroom, but rather midtown in a conference room on the 30th floor of Beattie’s firm; the outside directors would seek no reports from AIG managers, who were directed to sit in an adjacent room until summoned; and it was chaired not by Greenberg, but by Zarb.
Zarb knew that Greenberg was out of town that weekend and arranged to have him call in to the meeting at designated intervals during his trip back to New York. Although Greenberg planned to step down as CEO and hand the baton over at the upcoming annual meeting two months hence, the meeting’s purpose was to propose his early resignation—along with that of Howie Smith, the company’s chief financial officer (CFO) since 1984. Motivations were mixed, however, since there had not been any investigation about the vague allegations Spitzer first aired at his Goldman Sachs speech five weeks earlier—not by Spitzer or Paul Weiss, the directors or Simpson Thacher, the SEC or DOJ, or PwC, though AIG had begun preliminary inquiries.
To prepare for the March 13 meeting, Beattie called Spitzer at the request of some of the outside directors. Beattie, who knew Spitzer professionally, saw Spitzer out running in Central Park in Manhattan. Walking together, Beattie wanted to find out where Spitzer was on the AIG matter, which Spitzer said “looked grave.”58 Spitzer alluded to some tape recordings of phone calls among Gen Re employees. Such material was third-party hearsay possibly inadmissible in court,59 both the experienced lawyers knew, and the tapes, it would be clear later, vindicated AIG and Greenberg.60
Beattie’s second task ahead of Sunday’s special board meeting was to host a gathering of AIG outside directors to vet their intended successor to Greenberg, Martin Sullivan. Under the succession plan put in place earlier, Sullivan knew he might be tapped to assume the CEO role on a trial basis while Greenberg facilitated a smooth transition. Meeting at Simpson Thacher’s offices that Saturday, Zarb and the rest of the faction wanted to know if he was ready to step up sooner and on a permanent basis. Sullivan signaled that he was all set.
The next morning, Zarb and the faction met at 10:00 A.M. in Beattie’s office to review their plan. The rest of the outside directors joined them at noon in a large high-tech boardroom of Simpson Thacher. At the meeting, Zarb invited Beattie to speak. Beattie referenced the tapes Spitzer had vaguely cited and told the board that Spitzer thought he “had damaging evidence” in the Gen Re matter.61 Mark Pomerantz, a lawyer from Paul Weiss, spoke next, elaborating on the prevailing law enforcement intensity that had been stoked after Enron and Sarbanes Oxley, warning of associated perils.62
A somber mood set, the emotional intensity in the room was about to rise, as Winograd, PwC’s partner in charge of the AIG account, took the floor. In a tone of distress, Winograd dropped a bombshell: the firm may be unable to deliver PwC’s clean audit opinion on AIG’s 2004 financial statements. That astonished most of those present, since there had been no hint of such a thing and the financial statements were due to be filed in a matter of days.63
Ambassador Hills, who had served on AIG’s audit committee for many years since joining the board in 1992, was incredulous. “What happened,” she asked, “since our audit committee meeting to warrant this reversal?”
Winograd cited questions about the accounting for the Gen Re transaction of 2000 raised in the six days since that committee meeting.
“What? But you signed off on that in 2000 and every year since.”
“Well, we’re not sure that we should have.”
Secretary Cohen, who had joined AIG’s board just the year before, pushed Winograd to explain. Winograd said Gen Re had not transferred the required risk to AIG for the deal to count as reinsurance.64
“But what is the effect of that difference on the financial statements?”
“Well, it just means that the liability was entered in the wrong account—it should be a general liability rather than a reserve liability.”
“So, what effect does that have on shareholders’ equity or net income?”
“None.”
“Suppose,” Secretary Cohen then suggested, “that you isolate the Gen Re transaction—now four years old, modest in size, and of no consequence for equity or income—and add a caveat to the financials explaining that, at this point, PwC has decided to reconsider its earlier opinion on that. Then you can certify the rest of the financial statements on time and in order.”
Winograd balked at this solution. He explained that PwC’s national office, rather than he, was taking this position. The directors could readily surmise that the firm’s partners felt pressure, perhaps to avoid the fate of their friends from Arthur Andersen.65
Ambassador Hills found this ordeal to be painful, as she observed the dire situation: When a company like AIG is unable to file financial statements on time, equity traders sell off its stock, sending its price tumbling, and capital markets shun the company, cutting its access to funds required for daily operations.
So Hills and Cohen continued to request isolating the Gen Re transaction, and Winograd continued to resist that solution for reasons that remained nonsensical. Finally, Winograd made a suggestion that struck Hills and Cohen in particular as a nonsequitur: that PwC might be able to give its opinion if Greenberg resigned as CEO and Smith resigned as CFO.
The logic of that option was elusive. AIG’s 2004 financial statements either were or were not fairly presented and the 2000 Gen Re transaction either was or was not accounted for properly. PwC’s professional opinion about those matters had nothing to do with the identity of the company’s top officers. And it is not the prerogative of the outside auditor to usurp a corporate board’s sacrosanct authority to appoint its officers—anymore than it would be legitimate for an attorney general to do so. Such a suggestion reinforced an eerie sense that what the board was hearing from Winograd was not an independent PwC making accounting judgments but a PwC under pressure to throw Greenberg overboard. It is not clear why PwC might have done this, but prosecutorial pressure would have led it to minimize liability risk that could threaten its survival, as happened with Arthur Andersen; business pressure would have stoked a desire to keep the AIG account as power at the company shifted from Greenberg to Zarb.*
With the directors startled, Zarb focused on the subject of Greenberg’s employment and patched him in by telephone. After Zarb summarized what the board was discussing, Greenberg’s voice must have boomed through the speaker phone. He stressed his belief in the accuracy of the Gen Re accounting, the immateriality of the amounts and the importance of standing by AIG employees, including those who implemented the Gen Re transaction. He argued that succumbing to prosecutorial pressure amounts to abandoning AIG’s employees and surrendering its culture. The more you capitulate, the more they will target you, he contended, emphasizing that such a weak posture would ruin AIG.
Zarb drew the board’s attention to a subpoena that Spitzer had issued requesting Greenberg to testify under oath about Gen Re and possibly other matters. Spitzer would also schedule an interview with Buffett, whose Berkshire Hathaway owned Gen Re, the company initially investigated by the Virginia authorities, but not under oath.66 One outside director posed a tricky question ostensibly founded on an AIG corporate policy requiring all employees to cooperate with governmental inquiries: would Greenberg answer all and any of Spitzer’s questions or exercise his Fifth Amendment right to decline to be a witness against himself?
Lawyers invariably counsel clients in such settings to take the Fifth, even with nothing to hide. After all, a witness recounting the same events more than once rarely does so exactly and two witnesses recounting events to a prosecutor often contradict each other. Either such common pitfall exposes a witness under oath to charges of perjury or obstruction of justice.67 In this instance, Spitzer had refused to let Greenberg see any of the documents that Gen Re’s lawyers had supplied and refused to limit the scope of questioning. So Spitzer could pose questions on any subject under the sun on which Greenberg could not possibly be prepared. That is a tall order for the CEO of a global company that engaged in 40 million transactions annually. It was daunting given that Spitzer had singled out a transaction that had occurred five years earlier after Greenberg had spent perhaps 15 to 20 minutes on it—and Spitzer signaled interest in addressing other transactions as many as 15 to 20 years old. Nevertheless, Greenberg said he could precommit to answering every question if Spitzer would tell him the subject matter and provide related documents. Absent that, he could not guarantee there would be no questions so far afield or outside his knowledge that he would have to decline answering.
The risk of contradiction in such contexts was borne out by Buffett’s later statements in Spitzer’s suit against Greenberg when compared to testimony of successive Gen Re CEOs. Ferguson, CEO when Greenberg broached the transaction, e-mailed two colleagues on November 6, 2000, to report that he had vetted the deal with Buffett, who had blessed it.68 Buffett denied that such a conversation took place.69 Ferguson’s successor, Joseph Brandon, testified repeatedly that on several occasions he and Buffett spoke about the possibility of terminating the deal (“commuting” it, in industry parlance) and that Buffett opted each time to let it run its course.70 Buffett likewise denied that any such conversations ever occurred.71 Prosecutors may have eventually sided with Buffett rather than with Ferguson or Brandon, but the contradictions show the perils any witness faces in such complex cases.
At the March 13 AIG board meeting, without Greenberg present, the directors then debated his fate. Cohen and Hills stressed the merits of the case that Greenberg made for standing by the company and its employees; they noted how he spoke of the value of AIG’s loyalties to its employees and pointed out that, in this situation, the relevant employee was Greenberg. Aidinoff and Zarb argued the opposite, averring the need to be assertive and defend themselves. They urged that this was an opportunity to implement a succession that, they felt, should have been done years before, and on which they had been working since retaining Beattie four months earlier.72
Cohen and Hills acknowledged that the pressure was overwhelming and the situation anguishing: Spitzer was intense, uncompromising and had demonstrated a propensity to portray his targets in the most negative possible public light; PwC, apparently under pressure, was saying it may withhold its audit opinion; lawyers all around them were hammering the hazards of the matter in the prevailing environment; AIG’s stock price was sliding and could plummet; the company’s cost of capital was inching up and access to capital could evaporate. Ultimately, the directors were put in an acute conflict of interest: either throw their leader overboard or risk personal liability and the company’s immediate fate. As the law professor and former SEC Commissioner, Joseph A. Grundfest, wrote contemporaneously in the New York Times:
If the government insists that A.I.G.’s chief executive be fired as part of the price of not indicting the firm, the chief executive is gone . . . . A.I.G. has no realistic choice but to cooperate fully with the government, even if evidence might later demonstrate that the government’s theories were legally infirm or that factual allegations couldn’t withstand cross-examination.73
In this milieu—anguished, awkward, conflicted, or painful, depending upon each participant’s viewpoint—the directors opted to request Greenberg’s resignation as CEO. Beattie and Zarb called Greenberg with the news, indicating that he could continue as chairman until the annual meeting two months hence. Greenberg accepted the ultimatum to resign as CEO but said he would not continue as chairman if there were any time limit—it would have to be possible to be reelected at the next annual meeting and serve additional terms as well. Greenberg was stunned by what he heard next: that the men would check with Spitzer on that.74 Afterward, they assented, though Aidinoff and others did not like the idea, for fear that Greenberg would overshadow Sullivan, whom the board named as his successor CEO.
Greenberg was already weighing the pros and cons, to AIG and to him, of staying on as chairman or simply resigning that post, too. He would continue to mull over that question in ensuing days after he returned to New York and then embarked for a long-scheduled 10-day business trip to Asia on a variety of AIG matters along with two other AIG executives.75 On that trip, the Chinese government awarded Greenberg its Marco Polo Prize for promoting American-Chinese relations; the Malaysian government agreed to extend AIG’s right to maintain its historical level of ownership in its operations there for another five years.76
After those meetings, Greenberg changed his itinerary, canceling the India leg of the trip and heading instead for Switzerland, where he and his wife, Corinne, spend two weeks each August hiking together. There they pondered the upheaval. Greenberg now thought it was probably best for him, and for AIG, to resign as chairman. He had several conversations with colleagues and advisers during this time, including David Boies, his personal lawyer who became a trusted confidant. During that trip, Greenberg decided to resign entirely.77
It was clear to Greenberg that AIG’s governance was firmly, fully, and candidly in lockstep with Spitzer, whom Greenberg came to regard as a preening scion of outsized ambition. At the same time, Greenberg formed the opinion that Beattie was a political opportunist in lawyer’s clothing—not simply protecting a client’s interests but promoting an outcome shaped by New York politics, which then meant supporting Spitzer. As for lawyers at Paul Weiss, Greenberg concluded that they represented not so much AIG but Spitzer’s views of what was good for AIG.
Under pressure and facing conflicts of interest, the directors had ceased defending employees or the company they had built. Senior AIG officials even pleaded with Spitzer to tell the media that they were cooperating with him, and Spitzer obliged this unusual service in a public statement of April 4, 2005,78 to the continuing dismay of the other governmental agencies just beginning to look into the bold claims Spitzer would increasingly broadcast publicly.79 An unorthodox hostile takeover of AIG by its outside directors had thus been completed.80
No justification for the decision had been given, however, as neither Spitzer nor anyone else had investigated the matters in speculation, about the Gen Re transaction or otherwise81—all of which had been certified for years by PwC based on its annual audits. Faced with the challenge of justification, those in control would resort to stretches of the accounting imagination.
*In fact, days after this board meeting, Winograd confided to Greenberg that he personally had no problem with AIG’s financials or with him or Smith. Winograd blamed PwC’s national office for the ultimatum. Samuel A. DiPiazza, who was PwC’s chairman at the time, declined Cunningham’s request for an interview for this book.
Notes
1. Elisabeth Bumiller, “Bush Signs Bill Aimed at Fraud in Corporations,” New York Times (July 31, 2002).
2. See, for example, Richard A. Oppel Jr., “Two Republicans Join Ranks of S.E.C. Critics,” New York Times (July 3, 2002).
3. See Opinion, “Spitzer’s Latest Loss,” Wall Street Journal (August 2, 2011) (“Enron created a political incentive [for prosecutors] to pursue white-collar defendants”).
4. See Bernard Black, Brian R. Chefffins, and Michael Klausner, “Outside Director Liability,” Stanford Law Review 58 (2006): 1055.
5. Arthur Andersen LLP v. United States, 544 U.S. 696 (2005).
6. New York General Business Law § 334; see Frank C. Razzano, “The Martin Act: An Overview,” Journal of Business & Technology Law 2006 (2006): 125.
7. See People v. Federated Radio Corp., 244 N.Y. 33, 164 N.E. 655 (1926). Under federal law and most state laws, proving business fraud requires “scienter,” referring to a mental state evincing a deliberate intention to deceive. Some argue that the federal securities laws, enacted in 1933 and 1934, and requiring scienter, do or should preempt the Martin Act. See, for example, Steve A. Radom, “Balkanization of Securities Regulation: The Case for Federal Preemption,” Texas Journal of Business Law 39 (2003): 295.
8. Nicholas Thompson, “The Sword of Spitzer,” Legal Affairs (May/June 2004), available at www.legalaffairs.org/issues/May-June-2004/feature_thompson_mayjun04.msp.
9. E-mail to Cunningham from Howard I. Smith, April 27, 2012; see Kurt Eichenwald and Jenny Anderson, “How a Titan of Insurance Ran Afoul of the Government,” New York Times (April 4, 2005).
10. See, for example, Henry R. Butler and Larry E. Ribstein, The Sarbanes-Oxley Debacle (Washington, DC: American Enterprise Institute, 2006); Roberta Romano, “The Sarbanes-Oxley Act and the Making of Quack Corporate Governance,” Yale Law Journal 114 (2005): 1521.
11. Greenberg’s lawyers have filed numerous requests to obtain related documents under Virginia’s freedom of information laws. None of the documents specifically sought by them has been produced.
12. Brady Dennis & Robert O’Harrow Jr., “A Crack in the System,” Washington Post (December 30, 2008).
13. This episode has been widely reported. See, for example, Brooke A. Masters, Spoiling for a Fight: The Rise of Eliot Spitzer (New York: Times Books, 2006), 231; Peter Elkind, Rough Justice: The Rise and Fall of Eliot Spitzer (New York: Portfolio, 2010), 84.
14. See Greg Sargent and John Benson, “El-iot! Can Spitzer Go to 1600?” New York Observer (October 21, 2002).
15. See, for example, “Adi Ignatius, Crusader of the Year: Wall Street’s Top Cop,” Time (December 30, 2002); CBS News, 60 Minutes, “The Sheriff of Wall Street” (May 25, 2003), at www.cbsnews.com/stories/2003/05/23/60minutes/printable555310.shtml.
16. See, for example, Kimberly A. Strassel, “The Passion of Eliot Spitzer,” Wall Street Journal (May 3, 2006).
17. See New York Rules of Professional Conduct, 4-109; New York Code of Professional Responsibility, DR 7-107 (in effect when Spitzer was in office).
18. American Bar Association, Model Rule 3.8(f) (criminal prosecutors “shall refrain from making extrajudicial comments that have a substantial likelihood of heightening public condemnation of the accused”).
19. Daniel Fisher, Carrie Coolidge, and Neil Weinberg, “The Battle of the Titans over AIG: Superlawyer David Boies Takes on Eliot Spitzer,” Forbes (May 9, 2005).
20. Ibid.
21. Elkind, Rough Justice, 57–58.
22. Greenberg asked New York insurance regulators to issue formal written guidance concerning the payment of contingent commissions to brokers and regulators did so. Those guidelines clarified that many of the practices that Spitzer challenged were legitimate. Vincent Laurenzano was the person Greenberg contacted; he was assistant deputy superintendent and chief examiner of the Financial Condition Property/Casualty Bureau.
23. Jeffrey Greenberg was succeeded by Spitzer’s former boss at the New York District Attorney’s office, Michael Cherkasky.
24. See Joseph B. Treaster, “Broker Accused of Rigging Bids for Insurance,” New York Times (October 15, 2004).
25. See Kulbir Walha and Edward E. Filusch, “Eliot Spitzer: A Crusader against Corporate Malfeasance or a Politically Ambitious Spotlight Hound: A Case Study of Eliot Spitzer and Marsh & McLennan,” Georgetown Journal of Legal Ethics 18 (2005): 1111.
26. Cunningham interview with Richard I. Beattie, New York, May 2, 2012; see Masters, Spoiling for a Fight, 236.
27. While sparing Marsh & McLennan as a firm, Spitzer nevertheless targeted employees, who were vindicated. Two whose cases were dismissed because of prosecutorial unfairness later sued Spitzer for defamation after Spitzer wrote an online article suggesting that, despite the dismissal, they were guilty as charged. See Eliot Spitzer, “They Still Don’t Get It,” Slate.com (August 22, 2010); Don Jeffrey, “Ex Marsh & McLennan Executive Gilman Sues Spitzer, Magazine for Defamation,” Bloomberg (August 22, 2011). One of those defamation cases remains pending as of this writing while one was dismissed because Spitzer’s statements appeared to concern Marsh rather than the particular employee. See Gilman v. Spitzer, 11 CV-5843 (S.D.N.Y. Oct. 1, 2012).
28. People ex rel. Spitzer v. Grasso, 893 N.E.2d 105 (N.Y. 2008); see also Ken Langone, “Drop the Case Against Hank Greenberg,” Wall Street Journal (October 6, 2009).
29. Cunningham telephone interview with Jack Welch, March 6, 2012; Cunningham interview with Kenneth R. Langone, New York, October 3, 2011; see also Charles Gasparino, “Wall Street: This Case Is Personal,” Newsweek (September 27, 2004); Opinion, “Spitzer’s Rise and Fall,” Wall Street Journal (March 11, 2008).
Spitzer has equivocated or obfuscated concerning this incident. For example, in a Fox Business News interview of November 9, 2011, after the moderator played a clip of Welch quoting Spitzer’s menacing words—that he “will put a spike through Langone’s heart”—the following exchange occurred:
Moderator “Is that true or not?”
Spitzer “Not true. But here’s what are the facts.”
Moderator “Jack Welch is lying here?”
Spitzer “Jack was not there. Look, Jack and I got along well most of the time. We also pursued GE. Silly little kids stuff. They had some dishwashers that burst into flames when they hit the dry cycle. . . .”
http://video.foxbusiness.com/v/1300170404001/spitzer-private-sector-should-determine-pay.
30. CBS News, “The Sheriff of Wall Street”; see also Patrick McGeehan, “With Critics at the Door, Funds Propose Cleaning Own House,” New York Times (October 31, 2003) (reporting interview in which Spitzer called for “heads to roll” at the SEC for agency’s failure to properly supervise the mutual fund industry, which became another Spitzer target); Jonathan R. Macey, “State-Federal Relations Post-Eliot Spitzer,” Brooklyn Law Review 70 (2004): 117, 127 (quoting Spitzer as asking “the most obvious and embarrassing question: ‘where has the Securities and Exchange Commission been while all of this . . . was going on?’”); Deborah Solomon and Ian McDonald, “Spitzer Decries Lax Regulation over Insurance,” Wall Street Journal (November 17, 2004).
31. “Spitzer Blames the SEC; Donaldson Admits Mistakes,” The Corporate Reform Weekly: Citizen Works’ Look at the Campaign for Corporate Reform 2(41) (November 3, 2003), http://citizenworks.org/news/index.php?id=106.
32. See, for example, Peter Krug, “Prosecutorial Discretion and Its Limits,” American Journal of Comparative Law 50 (2002): 643, 659.
33. Cunningham telephone interview with Cynthia A. Glassman, former SEC commissioner, April 6, 2012.
34. “Statement of the Commission Regarding the Enforcement Action Against Alliance Capital Management,” SEC News Digest (December 18, 2003), at www.sec.gov/news/digest/dig121803.txt (objection to Spitzer settlement that involved setting mutual fund fees).
35. See William S. Laufer, Corporate Bodies and Guilty Minds (Chicago: University of Chicago Press, 2006), 40.
36. Terry Frieden, “FBI Warns of Mortgage Fraud ‘Epidemic’: Seeks to Head off ‘Next S&L Crisis,’” CNN (September 17, 2004), available at www.cnn.com/2004/LAW/09/17/mortgage.fraud.
37. Spitzer’s foray into subprime alleged that high-interest loans made by large national banks were disproportionately made to minority groups, violating state fair lending laws. Federal banking authorities challenged the power of states such as New York to pursue such claims. The Supreme Court eventually rejected the federal argument, after Spitzer had left the attorney general’s office. Cuomo v. Clearing House Association, 557 U.S. 519 (2009), www.supremecourt.gov/opinions/08pdf/08-453.pdf. Although the case is taken to speak for concern that the federal authorities had some responsibility for failing to investigate matters associated with the financial crisis of 2008, the claims that Spitzer raised were about fair lending laws.
38. See Paul Tharp, “AG Snit Has Hit the Fan,” New York Post (July 10, 2012); CNBC, “Spitzer’s Vendetta vs. Greenberg” (July 10, 2012), available at www.cnbc.com/id/15840232?video=3000102000&play=1; affidavit of Dennis C. Vacco in Smith v. New York State Office of the Attorney General, Index No. 3670-08 (Cahill, J.) (September 27, 2012). In this case, Howard Smith, former CFO of AIG, sought various records under New York’s FOIL, including e-mails of Spitzer addressing official state business on nonstate computers. Despite resistance from Spitzer’s successor, Eric Schneiderman, the court ruled in Smith’s favor.
On the program where Vacco appeared to report this meeting, Greenberg’s lawyer, David Boies, was asked to comment. The program aired the following written statement from him:
These are obviously very disturbing charges. Over the last seven years, almost all of the charges originally brought by the Attorney General against Mr. Greenberg have been dismissed. If these claims were brought with knowledge that they were without merit for the purpose of retaliating against a political critic, this was an even greater miscarriage of justice abuse of the legal system.
Transcript at 5:42–5:43. Immediately afterwards, Spitzer called one of Boies’s law partners, another of Greenberg’s lawyers, and shouted into the phone:
Because your firm is in bed with someone like Hank Greenberg, you have to bear the consequences and I have a bazooka pointed at David Boies, you and everyone else at your firm who is involved.
E-mail from Nicholas Gravante to David Boies, July 10, 2012.
39. The theory had three elements. First, the two executives supposedly ordered underlings to fabricate a paper trail making it look as if Gen Re proposed the deal rather than AIG—since usually AIG wrote primary insurance policies and Gen Re specialized in reinsurance. Second, the theory went, the scheme involved creating a deal that looked as if Gen Re transferred some insurance risk to AIG in exchange for Gen Re paying AIG a fee. But, third, Spitzer and others surmised, Gen Re did not really transfer the required risk and the fee it paid was reimbursed by AIG through credits an AIG subsidiary gave to a Gen Re subsidiary.
40. Both companies agreed to cooperate fully in prosecuting their employees, in agreements reached long after Greenberg left AIG. See AIG-DOJ Non-Prosecution Agreement (February 7, 2006), available at http://lib.law.virginia.edu/Garrett/prosecution_agreements/pdf/aig.pdf; Gen Re–DOJ Non-Prosecution Agreement (January 2010), available at http://lib.law.virginia.edu/Garrett/prosecution_agreements/pdf/genre.pdf.
41. United States v. Ferguson, 654 F.3d 61 (2d Cir. 2011). Richard Napier, a former Gen Re vice president, who made a plea bargain, acknowledged in court testimony that some of the facts he supplied when negotiating his plea deal were incorrect and the rest of his testimony did not support the government’s claims. Trial Transcript, United States v. Ferguson, vol. VIII (January 18, 2008), 1660–1668 (plea agreement recited as a fact that a no-risk deal was discussed in the October phone call but Napier acknowledges repeatedly in open court that that there was “no discussion about risk at all in that [October] conversation”); see also ibid. at 1678–1682 (acknowledging giving at least two and perhaps three different versions of events during the course of the case). A federal appeals court called Napier’s testimony overall “less than reliable.” United States v. Ferguson, 653 F.3d 61, 71 (2nd Cir. 2011) (referring to part of his testimony); see Mark Hamblett, “Circuit Reverses Five Convictions in Alleged AIG Insurance Fraud,” National Law Journal (August 2, 2011).
42. Oral argument, United States v. Ferguson (November 17, 2010), at 11:59:45 A.M. to 12:03:46 P.M. In charging Ferguson and the others, the government had named Greenberg as “an unindicted coconspirator,” an often gratuitous designation prosecutors assign to people for a variety of reasons, though the practice, popularized during the Watergate era, is frowned upon and discouraged by such authorities as the U.S. Attorneys’ Manual.
43. Reuters, “Defendants in AIG/Gen Re Case Reach Deal with Government” (June 22, 2012).
44. See, for example, Deferred Prosecution Letter Agreement between U.S. Department of Justice and Christian M. Milton, 3:06cr137(VLB) (June 22, 2012), which recites that the defendant:
recognizes that aspects of the [Gen Re] transaction were fraudulent; and does not dispute that (a) the [Gen Re] transaction was highly unusual, (b) red flags suggested that the transaction would be improperly accounted for, which he disregarded, and (c) he should have attempted to stop it from going forward, but instead continued to participate in it.
45. These are technically called the “summary of unadjusted differences.”
46. See Minutes of Meeting of the Audit Committee of American International Group, Inc. (March 7, 2005):
Mr. Winograd presented PwC’s update on the audit since the earnings release date . . . He noted that among the most sensitive and judgmental areas of accounting utilized by the Corporation is the reserve for losses and loss expenses, and PwC remains comfortable with Management’s estimates in this area. . . . He also indicated that the audit would not be complete until the investigation [stimulated by the subpoenas] was substantially complete. . . . Winograd reported that disclosure with respect to ongoing regulatory matters will be finalized this week. . . . Winograd next advised the Committee that no material weaknesses in internal controls had been identified. . . . PwC expects to issue a “clean” opinion . . . .
47. The press had begun to report the story, describing Spitzer’s inquiry in ominous tones or attributing the information to “unnamed sources”—which made it easy to surmise that Spitzer’s office was spinning the press, before an investigation was complete. See, for example, Alain Sherter, “Spitzer Exposes Crack in Greenberg’s Armor,” Daily Deal (February 18, 2005); “Regulators Eye Reinsurance, AIG Reserves,” CFO (March 8, 2005) (noting stories in both the Financial Times and Wall Street Journal citing “unnamed sources” about the inquiry); see also Boyd, Fatal Risk, 135.
48. Cunningham interview with Ernest Patrikis, New York, January 23, 2012.
49. See, for example, Masters, Spoiling for a Fight, 262, quoting Beattie as follows:
What Eliot [did] very successfully [was] outsource his work by threatening people and subpoenaing them. . . . I think it is a very effective method. He [had] many law firms in the city working for him.
50. Cunningham sought to interview Paul Weiss lawyers involved in the AIG case but the senior Paul Weiss partner in the matter declined on the grounds of the firm’s ethical duties to AIG.
51. In the interest of disclosure, Cunningham was an associate of Cravath, Swaine & Moore during the first six years of his legal career.
52. See Masters, Spoiling for a Fight, 202 & 207 (referencing Matthew J. Gaul).
53. See “Pataki, Spitzer Spar Over AIG Lawyer Contributions,” Insurance Journal (April 13, 2005) (referencing widely reported story, that Spitzer’s office affirmed, about 16 Paul Weiss lawyers financially backing Spitzer’s campaign).
54. See Brian Baxter, “Paul Weiss Pro to Defend Spitzer,” American Lawyer (March 12, 2008) (referring to Michele Hirshman, who was also Spitzer’s former deputy).
55. See, for example, Defendant American International Group, Inc.’s Memorandum of Law in Opposition to [Greenberg’s] Motion to Compel Production of Documents (September 12, 2005), 2, 22.
56. Cunningham sought to interview senior PwC officials involved in the AIG matter but they declined or ignored the requests.
57. See Minutes of Meeting of the Audit Committee of American International Group, Inc. (March 7, 2005) (quoted above).
58. Cunningham interview with Richard I. Beattie, New York, May 8, 2012; Masters, Spoiling for a Fight, 235.
59. Masters, Spoiling for a Fight, 236. There are many exceptions to the rule barring hearsay evidence, including one covering statements of “co-conspirators.” So there is always some doubt about admissibility.
60. Some of the tapes surfaced in the trial against the four Gen Re employees and one AIG employee.
61. Cunningham interview with Richard I. Beattie, New York, May 8, 2012; Masters, Spoiling for a Fight, 235.
62. Masters, Spoiling for a Fight, 235.
63. This portrayal of the meeting is based on Cunningham interviews with a half dozen participants, not all of whom spoke on the record, as well as articles and books cited elsewhere.
64. He referenced a rule of thumb published by the head of the Financial Accounting Standards Board calling for risk measured as something like a 10 percent chance of a 10 percent loss—essentially a 1 percent net risk of loss.
65. See also Andrea Felsted, Ellen Kelleher & Stephanie Kirchgaessner, “Insurer Struggles to Sever Links with Starr,” Wall Street Journal (April 4, 2005) (reporting that PwC was also a subject of regulatory inquiries and that the SEC had requested information).
66. See Greg Farrell, “Two Titans to Answer Questions in AIG Probe,” USA Today (April 11, 2005).
67. Andrew Countryman, “AIG Chief to Take 5th in Spitzer Interview: A Wise Decision, Say Several Legal Experts,” Chicago Tribune (April 12, 2005).
68. People v. Greenberg, deposition of Warren Buffett (April 15, 2009), Exhibit 2.
69. Ibid., 42–48.
70. For example, People v. Greenberg, deposition of Warren Buffett (April 15, 2009), Exhibit 9 (U.S. Department of Justice submission of “Brady materials” to employee defendants in case); In re Certain Loss Mitigation Insurance Products, SEC, Wells Submission on behalf of Joseph P. Brandon (October 7, 2005), 48.
71. People v. Greenberg, deposition of Warren Buffett (April 15, 2009), 57–63.
72. Cunningham not-for-attribution interview with a direct participant.
73. Joseph A. Grundfest, “Over Before It Started,” New York Times (June 14, 2005).
74. Beattie does not recall saying that he told Greenberg that he and Zarb would have to check with Spitzer about this matter. Cunningham interview with Beattie; e-mail from Beattie to Cunningham, August 9, 2012.
75. AIG’s board met the next day, Monday March 14, at which Greenberg formally resigned as CEO, Smith was removed as CFO, Greenberg was elected as nonexecutive chairman, Martin J. Sullivan was appointed CEO, and Steven J. Bensinger was appointed CFO. AIG Board Minutes (March 14, 2005), 4. At that meeting, Greenberg requested that Winograd explain further the issues surrounding PwC’s audit opinion, on which a “lengthy discussion” ensued. Ibid. at 5.
76. In Malaysia, AIG’s current five-year ownership agreement was about to expire and Greenberg had arranged for negotiating a permanent solution to the ownership issue with a new prime minister who had recently taken office. The day Greenberg arrived was the day of another state minister’s funeral, causing a delay in their meeting. It also did not create the best atmosphere to negotiate a permanent solution so Greenberg proposed simply extending the existing deal for another five years and to take it up again later. The prime minister agreed. A few months later, Sullivan went to Malaysia to implement that new five-year deal, where the prime minister’s office did not see him, instead shunting him off to a deputy minister of finance or banking. There he was told that the only way Malaysia would agree to another five-year deal was if AIG also agreed that it would be the last one. The upshot: relationships matter, especially in international business affairs, and must be nurtured in personal ways.
77. The resignation letter, and accompanying AIG press release, appears as Appendix B on the companion web site for this book, at www.wiley.com/go/theaigstory.
78. Greg Farrell, “Two Titans to Answer Questions in AIG Probe,” USA Today (April 11, 2005) (“After the AIG board fired [Greenberg], Spitzer took the unusual step of issuing a statement praising the board for its actions and pledging that he would not take any legal action against the company itself.”).
79. Ian McDonald and Theo Francis, “Spitzer Expects a Civil Settlement with AIG,” Wall Street Journal (April 5, 2005).
80. A formal meeting of the “Outside Directors” of AIG was held on March 28, 2005, complete with the taking and filing of formal minutes, prepared and signed by Richard Beattie. AIG Minutes of Meeting of Outside Directors (March 28, 2005). Others have suggested that Spitzer effectuated a hostile takeover of the SEC. Jonathan R. Macey, “Positive Political Theory and Federal Usurpation of the Regulation of Corporate Governance: The Coming Preemption of the Martin Act,” Notre Dame Law Review 80 (2005): 951, 951–953.
81. See AIG Board Minutes (March 14, 2005), 5 (asked about filing the pending annual report with the SEC, Bensinger, the new CFO, said “new management needs ample time to conduct an appropriate review and take any necessary remedial action.”); Masters, Spoiling for a Fight, 237 (“No formal analysis had been done.”).