All the Devils Are Here [123]
Even as the SEC was prosecuting the Brightpoint deal, the agency opened up a second AIG investigation. This was a much bigger deal, and the guilty party this time was AIG-FP. The SEC eventually charged FP with conducting a series of fraudulent transactions that helped PNC, the big Pittsburgh bank, hide more than $750 million in dubious loans. The allegations were serious enough that the Justice Department opened a criminal investigation. Once again, it took several years to settle the case, this time with AIG agreeing to pay a fine of $80 million, with an additional $46 million in restitution. FP also signed a deferred prosecution agreement with the Justice Department—an extremely serious consequence.
The fine, however, would have been $20 million less but for the fact that at the last minute Greenberg reneged on the original settlement with the agency, vowing to fight the charges. AIG even issued a press release calling the government’s actions “unwarranted.” The SEC was furious, and the AIG board was shocked. It demanded that Greenberg settle. In addition to the extra $20 million and the deferred prosecution agreement, the government installed a full-time monitor inside AIG—in effect, a government compliance officer.
In late 2003, with the PNC investigation in full swirl, Cassano met with Greenberg, as he did every year, to show him how he planned to distribute the FP bonuses. As they were going through the numbers, Greenberg said, “Joe, if we’re paying a fine on PNC, it is going to come out of your pocket”—meaning the FP bonus pool. Cassano was startled. “We’re partners,” he replied. “We split things down the middle, good or bad. That’s our agreement.” Greenberg said, “I don’t go for people breaking the law. I’m telling you I’m not picking it up.” Furious now, Cassano flashed Greenberg the temper that the FP traders knew so well. “Go fuck yourself,” he said, pushing his finger in Greenberg’s face. “Calm down, Joe,” said Greenberg. “Don’t get upset.” Cassano did calm down—and Greenberg took the SEC fine out of FP’s bonus pool. There wasn’t a thing Cassano could do about it.
You would think that, by now, Greenberg would have learned at least one lesson—that a company accused of wrongdoing shouldn’t give the government the back of its hand. All that did was cause the government to dig in its heels. Thanks to Enron in particular, the rules had changed. The kind of “earnings management” that had routinely gone on in corporate America was no longer okay. State insurance regulators, who had long looked the other way at some of AIG’s accounting, were stiffening their spines. But Greenberg, stubborn to the end, expected the same kind of deference from government officials that he routinely received from the corporate world and from his employees. Which is why it was all the more unfortunate that the next government official to go after AIG was Eliot Spitzer, the attorney general of New York. Spitzer, who was preparing to run for governor, reveled in taking on tough guys like Greenberg.
By 2004, Spitzer had become the scourge of Wall Street. He had exposed conflicts of interest by Wall Street analysts and dug into sleazy behavior in the mutual fund industry. He had sued another tough guy, Richard Grasso, the former head of the New York Stock Exchange, attempting to claw back some of Grasso’s $140 million pay package. Most recently, he had turned his attention to the insurance industry. His original target was Marsh & McLennan, the world’s largest insurance broker, which, it so happened, was run by Greenberg’s eldest son, Jeffrey. In October 2004, brandishing a raft of incriminating e-mails, Spitzer accused the company of conducting a long-running bid rigging scheme. He also said he wouldn’t even begin to