The drama Spitzer generated around AIG in February, March, and April of 2005—with escalating threats and portrayals of great frauds he had discovered—had vastly overpromised. AIG’s accounting restatement turned out to be a modest event; the threat Spitzer made to Greenberg in May was rebuffed; most of the claims in the civil suit Spitzer filed that month would later be dropped; and by November 2005 he affirmed that there was no criminal violation to pursue. With his case unraveling, Spitzer staked out another line of attack, this time against the Starr Foundation. Endowed mostly by the bulk of Starr’s estate on his death, which was valued at about $15 million, Greenberg nurtured the Starr Foundation over ensuing decades to become one of the largest private charitable organizations in the United States. In December 2005, its assets exceeded $3 billion, and it made annual donations of hundreds of millions to charities worldwide, many in New York.
Spitzer’s assault on the Starr Foundation claimed that it had received less value from Starr’s estate for corporate shares it owned than it was entitled to—contending that the shortfall would now amount to $6 billion,1 a facially preposterous assertion considering that Starr’s entire estate was valued at about $15 million. To refute this claim, on Wednesday, December 9, David Boies, the lawyer representing Greenberg, brought all the original documents to a meeting with Spitzer’s staff. He walked them through the entire administration of Starr’s estate, showing how the executors did exactly what Starr intended in accordance with all relevant corporate requirements. Documents included validation of the arrangements by both federal and state authorities. At one point during the meeting, Spitzer stuck his head in to say hello. As he did, Boies tried to engage Spitzer in the discussion of this evidence, but Spitzer refused the invitation, saying Boies had to deal with the staff.2
Undeterred by the facts that Boies laid out, two days later, on Friday December 11, just before the close of business, Spitzer called a lawyer representing Starr International Company (SICO). Spitzer said he had concluded that the Starr Foundation had received less than it should have. Without explaining the basis for his belief, Spitzer offered not to disclose his claims publicly if Greenberg agreed immediately to pay a $770 million fine to resolve the unrelated charges that Spitzer had brought against him earlier in the year. Spitzer warned that if Greenberg did not agree to this by Saturday at noon, Spitzer would file a lawsuit based on these allegations. Greenberg refused to be blackmailed and declined to pay any such fine.
Lacking evidence to file a lawsuit, on Monday, December 14, Spitzer published what he called a “report” alleging breaches of fiduciary duty by Starr’s executors. Without first giving the document to Greenberg or the foundation’s president, Florence A. Davis, Spitzer distributed it to the media. Davis first learned of it when the press began calling her for comment.3
Spitzer’s press release announcing the report made it sound as if a suit had been brought and won: “Attorney General Eliot Spitzer today released a report detailing Maurice ‘Hank’ Greenberg’s conflict of interest and self-dealing as executor of the estate of his mentor, Cornelius Vander Starr.”4 Spitzer also sent copies directly to many others, including lawyers at Paul Weiss and Simpson Thacher and the judge presiding in Spitzer’s unrelated accounting case against Greenberg—the latter an act of dubious ethical probity, as canons of legal ethics strictly prohibit lawyers from unilateral communications with the judge in a pending case.5
Despite regarding the assertions as frivolous, the Starr Foundation promptly ordered a full and independent investigation of Spitzer’s conjectures by a special committee composed of Davis, the Starr Foundation’s president; one retired New York state judge; and one retired New York surrogate court judge experienced in estate law and administration. The committee retained two outside law firms with similar independence and expertise.6 The committee’s investigation took more than a year, involved reviewing 650,000 pages of documents, and interviewing every participant and witness who was still alive. It cost the foundation $4 million in professional fees and out-of-pocket expenses.7 These costs were incurred despite duplicating work done two generations earlier, when Starr’s will was probated by New York’s surrogate court, following standard procedures, and signed off by state and federal authorities, after numerous hearings, as well as scrutiny by and litigation with the Internal Revenue Service.
The committee found that all of Spitzer’s conjectures were utterly off-base. On the contrary, the committee determined that Starr’s executors—nine of his best friends and closest associates, named executors because he had made them the directors of C. V. Starr & Company—acted in good faith and prudently in carrying out his will.
Spitzer’s charges against the executors—including Freeman, Greenberg, Manton, Roberts, Stempel, and Tse—concerned three share transfers from Starr’s estate, two to the companies that had issued them, C. V. Starr & Company and SICO’s predecessor, and the third to an affiliate of an Asian life insurance venture Starr co-owned with Tse. In each case, the executors simply carried out the transfers in accordance with the charter documents of the respective company. For example, the charter of C. V. Starr & Company provided, as charters of closely held corporations commonly do, for mandatory redemption of shares upon the death of a shareholder at predetermined price levels.
The executors had essentially no discretion in executing the required transactions and followed the requirements punctiliously. In response to Spitzer’s press release, the surviving executors in addition to Greenberg, namely Freeman, Roberts, and Stempel (Manton died on October 1, 2005, at age 96), issued a statement calling the report “shameful, outrageous and insulting.”8 They added:
The people of New York deserve an attorney general who is intent on fighting crime and solving the state’s problems, not harassing its citizens and philanthropic organizations. Each of us fulfilled our duty to Mr. Starr and the foundation without compensation and in accordance with his wishes and the law. Our decisions were reviewed and approved nearly 30 years ago by Mr. Spitzer’s own office, the Internal Revenue Service and the New York State Surrogate’s Court.
Spitzer’s wild goose chase, which was based on the work of a summer intern plowing through records obtained from SICO’s lawyers in Bermuda,9 was misconceived for many reasons. The foundation’s special committee noted how Spitzer’s “report” showed no understanding of who Starr was; how he had organized his companies; why he chose the directors of C. V. Starr & Company to serve as executors; or the special relationship that Starr had forged with Freeman, Greenberg, Manton, Roberts, Stempel, Tse, and the other director-executors. It explicitly ignored how that band of brothers led AIG during ensuing decades to increase the value of the Starr Foundation from some $15 million at the time of Starr’s death to $3.5 billion in 2005.10
Although Spitzer had not challenged the Starr Foundation’s grant-making, the committee highlighted some of the grants the foundation made in the previous year alone: $100 million to create a consortium of five internationally renowned medical research institutions, all but one based in New York, to collaborate on finding a cure for cancer; $50 million to Rockefeller University to support collaborative medical and scientific research, extending research commitments on hepatitis C and the genetics of obesity; $25 million to the Harlem Children’s Zone, a community development organization dedicated to creating opportunities for disadvantaged children; nearly $20 million in need-based scholarships for college and university students; $15 million to Alice Tully Hall at Lincoln Center; $15 million to the New York Philharmonic; and $10 million to New York’s Cooper Union to provide scholarships for engineering students.
The Starr Foundation allocates its assets according to principles consistent with those Starr held, in the areas of education, medicine, human needs, public policy, foreign affairs, culture, and the environment.11 Examples: about $250 million has gone to institutions in China, investments in keeping with the pivotal role China promises in promoting global economic security and peace; $300 million has funded scholarships for needy students, reflecting the intrinsic value of education; and grants of close to $2 billion have helped diverse institutions in New York, headquarters of AIG and domicile of the foundation.12 Biting the hand that feeds citizens of New York is probably not something most New Yorkers would wish their attorney general to do.
Davis could only speculate about the exact motives that induced Spitzer to publish such a baseless document.13 True, New York law vests its attorney general with powers to enforce state law against charitable organizations operating in the state, but the power is discretionary.14 Davis attributed Spitzer’s motives to his frustration with how poorly his accounting lawsuit against Greenberg was going—a motive to harass Greenberg and pressure him into a settlement.15 This explanation was supported by how Spitzer distributed his material in a press release that read as if the charges had been proven and sent directly to many parties, including the judge in his pending case against Greenberg. The press construed the report as part of Spitzer’s campaign against Greenberg, with the New York Times reporting it “turns up the volume in an already vehement battle between Mr. Spitzer and Mr. Greenberg.”16 This explanation also accounted for the timing of Spitzer’s Starr Foundation assertions, coming as they did just after he acknowledged that there was no criminal case and as his civil case was proving increasingly weak.
Davis also appreciated that the attorney general had the power to take over private foundations through New York’s Charities Bureau. If that were the case, decisions on how to allocate the Starr Foundation’s billions of dollars in assets would no longer be made by the Starr Foundation’s board, but by New York state officials. As Spitzer was then running for and would soon become its governor, Davis supposed that Spitzer may have relished the prospect of diverting the funds to charities he preferred, rather than those chosen by the foundation’s directors, who knew Starr.
Ironically, considering Spitzer’s behavior, the Starr Foundation supports important programs devoted to promoting the rule of law and principles of world leadership in the democratic tradition. One is a program in China that includes training local prosecutors in legal ethics. Topics feature limitations on prosecutorial discretion and the need for prosecutors to adhere to proper standards of conduct. Examples of basic imperatives taught in the program include bans against unilateral communications to judges in a pending case, publicly disparaging a defendant, and engaging in conduct prejudicial to the administration of justice.17
The Starr Foundation has devoted considerable resources to promoting the rule of law and related principles around the world. In 1995, Temple University sought funding from the Starr Foundation to support a novel program inspired by Deng Xiaoping, China’s premier whose liberalizing reforms of the 1970s enabled AIG to help reopen China for business.18 When presented by Temple’s Robert Reinstein, the Starr Foundation welcomed the proposal and agreed to fund it. An initial grant enabled launching the program and several renewal grants adding up to $9 million have sustained it. As a result, the Temple-China rule of law program has educated more than 1,000 government officials in the subject, including many prosecutors who have been trained in legal ethics.
Peking University, among China’s top schools, recruited former Cornell University president, Jeffrey Lehman, to open a new law school focused on teaching law in the traditional mode of U.S. law schools.19 Peking University believed that this approach, unique in China, would be a valuable institutional way to begin to incubate a generation of law students—future lawyers, prosecutors, and judges—in the rule of law. Again, the Starr Foundation liked the proposal and helped to fund it. The Peking University School of Transnational Law is making distinctive contributions to developing the institutions and cultural conditions to anchor the rule of law.
Since 2003, the Starr Foundation has supported the World Fellows program at Yale University. It brings emerging leaders from diverse cultures and countries to its New Haven, Connecticut, campus each fall for seminars, study, and leadership training in the U.S graduate school tradition. Greenberg meets with them and introduces them to the leadership of the Council on Foreign Relations. As Yale’s president, Richard Levin, put it, the program immerses Fellows in “work addressing major problems of the planet: nuclear non-proliferation, eradicating poverty, managing climate change—problems confronting all places in the world though with each place looking at them through a different lens.”20
The Starr Foundation embraced this program because it would expose budding world leaders to the best of American values. People taking residence in U.S. universities experience critical thinking and analytical rigor, the quest to surmount or subordinate prejudices, the American spirit of questioning and, of course, the rule of law. President Levin attests that many Fellows arrive as critics of the United States or skeptical of its policies. But their time as Fellows teaches them a lot about America’s virtues, which they take back to their home countries.21 One alumnus is Alexy Navalny, a young Russian lawyer who was imprisoned for 15 days after leading protestors challenging the validity of elections conducted by Prime Minister Putin in December 2011.22 Of the program, Navalny said: “There is tremendous value in gathering rising world leaders to a great American university to study principles, such as the rule of law, as each of us return to our home countries with a greater appreciation of such principles and the credibility to promote them.”23
Many other Starr Foundation commitments likewise support the goal of a civilization anchored in the principles of democracy and capitalism. A prominent long-standing recipient of the Foundation’s money is the Council on Foreign Relations, founded in 1921 by a group of internationalists interested in the stabilizing potential of American involvement in the world.
The Starr Foundation has also long supported the Asia Society, founded in 1956 by John D. Rockefeller III. It pursues the twin goals of increasing knowledge about Asia in the United States and about the United States in Asia. The Asia Society’s headquarters are in New York City, where the foundation helped finance the construction of its building.
Similar interests inspired the Starr Foundation to support the Japan Society of New York, which Rockefeller reopened in 1952 after it had been shuttered due to the hostilities of World War II. The Society features a rich array of groundbreaking exhibitions on all aspects of Japanese culture, including topics addressing corporate and policy issues.
Greenberg was personally involved in the creation of the Center for the National Interest, originally known as the Nixon Center. At first, the former U.S. president did not embrace the idea of a think tank, as it was not the kind of institution that appealed to him. But over dinner one night in late 1993 at President Nixon’s home in Saddle River, New Jersey, Greenberg persuaded him otherwise. They were discussing Nixon’s foreign policy accomplishments, epitomized by reopening relations between America and China. Greenberg suggested making the American national interest the basis for the center. Greenberg became the founding chairman, joined by board members Henry Kissinger, Brent Scowcroft, and James Schlesinger. The Starr Foundation was a leading benefactor. Devoted to promoting mutual understanding, the center is committed to educating the world about American values.
Other beneficiaries of the Starr Foundation include New York–Presbyterian Hospital, among today’s most successful medical centers. A trustee since 1979, Greenberg was asked by fellow directors to take over as chairman in 1988 with the goal of turning the hospital around when it had been reeling from criticism about its quality of care and losing $1 million a week. The board recruited a new president of the hospital, Dr. David B. Skinner, who had been teaching at the University of Chicago’s Pritzker School of Medicine for 15 years.24
Skinner and Greenberg put the hospital back on a solid footing. They installed more effective control systems governing both medicine and finances. They developed alliances with other area hospitals to form an efficient network for medical services. And they raised substantial sums of money by tapping into New York’s philanthropic community. Funds were used to construct a world-class hospital building completed in 1997 at a cost of $760 million: the 11-story, 850,000-square-foot building near the East River extending over Franklin D. Roosevelt Drive—kindly named for Greenberg and his wife, Corinne, in recognition of their leadership and personal contributions made along with those of the Starr Foundation. Greenberg created a “Doctor of the Year” award and event attended by several hundred donors to raise funds and showcase the physicians at the hospital, the largest private employer in New York City.25
Before and since Spitzer’s failed effort to usurp the Starr Foundation, the Foundation’s roster of beneficiaries has included many other world class institutions in New York. A shining example is Weill Cornell Medical College, Cornell University’s medical school, working at the forefront of medical research. In 2007, the Starr Foundation helped lead a fundraising effort of $1 billion, to support constructing a new medical center on the East Side of Manhattan. Groundbreaking occurred in May 2010 for the 18-story, 480,000-square-foot building.
Spitzer’s failed intervention in the Starr Foundation’s affairs wasted $4 million of its assets that could have funded scholarships for needy students, been invested in promoting the rule of law, or supported medical research. Greenberg and Davis found the purported justification for Spitzer’s report to be preposterous. The independent committee’s stinging rebuke of the report supports that characterization.26 The Starr Foundation never received any response from New York authorities.
Notes
1. New York State Attorney General Report (December 14, 2005), 18.
2. Cunningham interviews and correspondence with David Boies, September 2012.
3. Cunningham interview with Florence Davis, New York, November 28, 2011.
4. New York Department of Law press release, December 15, 2005.
5. American Bar Association Model Rule 3.5(b).
6. The members in addition to Davis were Hon. C. Raymond Radigan and Hon. William C. Thompson; the firms were Farrell Fritz, PC, and Heller Ehrman LLP.
7. Cunningham interview with Florence Davis, New York, November 28, 2011.
8. See Gretchen Morgenson, “Report Says Ex-A.I.G. Chief Defrauded Foundation 35 Years Ago,” New York Times (December 15, 2005).
9. Masters, Spoiling for a Fight, 248.
10. Spitzer letter transmitting attorney general report, p. 2.
11. See Starr Foundation web site, www.starrfoundation.org/priorities.html.
12. See The Starr Foundation press release, “The Starr Foundation Announces Donation of $300 Million Since 1980 through the C.V. Starr Scholarship Fund Program” (March 3, 2011).
13. David Boies offered another explanation: “I think the attorney general may be the victim of not completely accurate staff work because if you read that report that was submitted by his staff, it’s got a lot of errors in it.” See Maria Bartiromo, “Hank Greenberg Speaks Out,” CEO Wire (December 19, 2005) (CNBC live interview).
14. See Part 97 of Title 13 of New York Code of Rules and Regulations.
15. Cunningham interview with Florence Davis, New York, November 28, 2011.
16. Gretchen Morgenson, “Report Says Ex-A.I.G. Chief Defrauded Foundation 35 Years Ago,” New York Times (December 15, 2005).
17. See American Bar Association, Model Rules of Professional Conduct, Rules 3.5, 3.6, 3.8 and 8.4
18. Cunningham telephone interview with Robert Reinstein, October 14, 2011.
19. Cunningham interview with Jeffrey Lehman, New York, January 30, 2012.
20. Cunningham telephone interview with Richard Levin, November 29, 2011.
21. Ibid.
22. See Ellen Barry, “Russia Cracks Down on Antigovernment Protests,” New York Times (December 7, 2011).
23. E-mail from Alexey Navalny’s press secretary, Anna Veduta, to Cunningham, April 27, 2012.
24. Tina Kelley, “Dr. David Sinner, 67; Oversaw a Hospital Merger,” New York Times (January 26, 2003).
25. Cunningham telephone interview with Herb Pardes, October 31, 2011 (about 20,000 employees, including 5,500 doctors and 4,800 nurses).
26. In fact, the Starr Foundation continued to be a favorite target of Spitzer’s successors, who sometimes mimicked his tactics while continuing for more than seven years the accounting suit against Greenberg. In June 2012, one successor, Eric Schneiderman, subpoenaed the Chamber of Commerce and a charitable affiliate, questioning political financing and lobbying activities. Questions addressed grants the affiliate received from the Starr Foundation which, the subpoena suggested, may have been used not for charity but to repay loans the Chamber took from the affiliate. Of course, the Starr Foundation lacks power over how the charity uses funds it provides and it is difficult to track the end use of fungible dollars. It did not seem coincidental that the Chamber had filed a “friend of the court” brief in the accounting suit, siding with Greenberg by arguing that the Martin Act, the statutory basis of the case, was invalid.