Monday, April 4, 2005

The Battle Looming Over AIG

It's not exactly like Sauron and the Orcs are approaching, but the fight between American International Group Inc.'s new management and former CEO Maurice Greenberg is starting to get a little bit ugly.  AIG posted a letter on its website (here) the contains the following discussion about the removal of documents from a Bermuda location shared by AIG and an off-shore entity led by Greenberg:

AIG has worked diligently to protect and preserve relevant documents, and will provide them to the authorities as requested. Recently, AIG became aware of efforts to remove documents and information from its Bermuda building without AIG's permission. AIG immediately brought these incidents to the attention of the relevant authorities. AIG has been cooperating with the New York Attorney General and the Securities and Exchange Commission with regard to document security in New York, Bermuda, Ireland, and other locations. As previously disclosed, one individual in Bermuda was terminated for failure to cooperate with AIG's review, and several other AIG employees in Bermuda have resigned.

The Wall Street Journal reports (here) that Starr International, a Bermuda company led by Greenberg that controls approximately 12% of AIG's stock and has operated as a means to enhance significantly the compensation of current AIG executives, has removed all current AIG officers from its board; among those removed are new CEO Martin Sullivan.  In 2003, Starr International paid out over $120 million in compensation to AIG executives (including then-CEO Greenberg).  AIG's 2003 10-K (it's 2004 report has been delayed until at least April 30) describes Starr International in this way: "Starr International Company, Inc. (SICO) provides a Deferred Compensation Profit Participation Plan (SICO Plan) to certain AIG employees. The SICO Plan came into being in 1975 when the voting shareholders and Board of Directors of SICO, a private holding company whose principal asset consists of AIG common stock, decided that a portion of the capital value of SICO should be used to provide an incentive plan for the current and succeeding managements of all American International companies, including AIG." A number of AIG executives have a financial stake in Starr International, and the company has been a vehicle to keep AIG executives from leaving the company at the risk of losing substantial amounts of AIG stock.

The question now is whether Greenberg will use the large block of AIG stock held by Starr International, and its close ties to AIG officers, to influence the burgeoning investigation of the company.  Given the attempted removal of documents from AIG's Bermuda office, and the change in board membership at Starr International, I think it is unlikely that off-shore entities with close ties to Greenberg will voluntarily provide documents to investigators. (ph)

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