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The Spitzer Effect

The Spitzer Effect

by Rick Turoczy on April 18, 2005

We don’t have to wait for the outcome of the battle between American International Group (AIG) and its regulators to predict that it will affect how public companies can be governed in a world in which prosecutors are unconstrained by rules designed to protect the rights of the accused.

Maurice “Hank” Greenberg built AIG from a small insurance operation into a $100 billion powerhouse, taking him to the pinnacle of America’s financial and philanthropic establishments and becoming one of the “high flying, adored,” to borrow from Tim Rice’s Evita lyrics. From which perch he has fallen, and is now an unemployed executive scrambling to transfer over $2 billion in assets to his wife to shield them from prosecutors and private litigants.

In rapid order: Greenberg was labeled “a CEO who did not tell the public the truth” and charged with “fraud” on a television broadcast by New York attorney general Eliot Spitzer; was defrocked by his board; and was forced to invoke his Fifth Amendment rights against self-incrimination when hauled before a regulatory inquisition before he had time to study the thousands of documents underlying the charges against him.

The specific issue involves a complicated transaction that may or may not have illegally shored up AIG’s earnings. But the way the game is now played, it matters little what the truth will prove to be. Spitzer threatened to destroy AIG by charging the company with criminal violations unless its board fired Greenberg–as he had earlier forced the board of Marsh & McLennan to unseat

Hank’s son, Jeff, as CEO, and replace him with a long-time Spitzer friend and former associate.

The Spitzer Effect

{ 1 comment… read it below or add one }

JLP May 1, 2005 at 7:28 pm

How can Spitzer get away with this? Who can stop him?

I hope NY isn’t dumb enough to elect him governor (no matter what your political beliefs are).

JLP

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