Monday, May 30, 2005
While it is hard to feel much sympathy for former American International Group CEO Maurice Greenberg, who viewed regulations as a pest to be swatted rather than a guide to proper business conduct, N.Y. Attorney General Eliot Spitzer's recent complaint against the company and Greenberg for alleged fraud engages in a bit of character assassination of its own. The complaint (here) states in its "Preliminary Statement" that Greenberg was "intensely focused on the daily movement of AIG's price," and on Feb. 3, two days after AIG announced underwriting losses from natural disasters, Greenberg told a trader for AIG to buy the company's shares on the open market and "I don't want the stock below $66 so keep buying." On Feb. 18, a few days after the subpoenas to AIG were revealed, the company's stock again declined and Greenberg urged a company trader to buy up to 250,000 shares, saying he wanted the trader to be "a little bit more aggressive." That's the last the complaint mentions of Greenberg's dealings with AIG's stock, and it's unclear why this information is in there except to somehow cast Greenberg as a nefarious manipulator of the market.
But is what Greenberg did wrong? It is certainly not a violation of New York state law, and none of the charges against Greenberg have anything to do with stock trading. If there is any violation, it would be of the federal securities laws and related regulations, a claim that the SEC (and DOJ) could bring. Company's are limited in the amount and timing of purchases of their own shares on the open market, and it's possible that Greenberg's requests to the traders caused a violation of those rules, but the evidence to this point does not show a significant violation, if there even is one. For a Rule 10b-5 violation for market manipulation, it appears that a crucial aspect of such a case is missing: the benefit to the trader from the manipulation. Greenberg was not selling shares while trying to prop up the company's price, and it does not appear that the trading had any purpose other than to help maintain the stock price in the face of negative news. Without the back-end benefit from the transactions, it's difficult to show a manipulative purpose for a fraud violation. Greenberg's extensive holdings in the stock (since transferred to his wife by gift in March) might be a reason to maintain the stock price, but he didn't sell any AIG shares to show that he sought to manipulate the price. An executive obsessed by the price of his company's stock is not unknown in CEO circles, much less illegal. What is the benefit from including the recitation of Greenberg's conversations with AIG traders when they have nothing to do with the alleged legal violations in Spitzer's complaint? Surely not grandstanding. (ph)