All the Devils Are Here [124]
Greenberg remained unrepentant. On February 9, 2005, just days after the Marsh & McLennan settlement was announced, AIG reported its $11 billion 2004 profits. During the earnings call with investors, Greenberg was asked about “the relatively hostile regulatory environment.” He replied, “When you begin to look at foot faults and make them into a murder charge, then you have gone too far.”
It would be hard to imagine a more poorly timed remark. On February 10, Spitzer got wind of a big reinsurance deal AIG had done with General Re, which was owned by Berkshire Hathaway. The information had come from Gen Re’s lawyers, who had uncovered the deal in the course of another investigation. The purpose of the transaction, Spitzer was told, was to boost AIG’s reserves by $500 million. Wall Street analysts had been calling for AIG to increase its reserve, and this, apparently, was the way the company had done it. Greenberg had reportedly instigated the deal himself, with a phone call to Gen Re’s CEO. But, according to Spitzer and (later) the SEC, no real risk was transferred. The SEC would call the deal a “sham.”
A few hours after Greenberg made his “foot fault” comment, Spitzer sent AIG a subpoena demanding documents relating to the Gen Re transaction. That evening, the New York attorney general happened to be the dinner speaker at a Goldman Sachs event. “Hank Greenberg should be very, very careful talking about foot faults,” he said. “Too many foot faults and you can lose the match. But more important, those aren’t foot faults.”
Not surprisingly, the board was fast losing faith in Greenberg. Even before the Spitzer subpoena, the independent directors had hired Richard Beattie, a high-priced lawyer with Simpson Thacher & Bartlett, who was well known for advising boards faced with difficult situations. Beattie had several dinners with Greenberg, hoping to persuade him to retire. At one point, right around the time of the earnings announcement, Greenberg had agreed to step down. But the next day he told Beattie he had changed his mind.
Once the Spitzer subpoena arrived, a special committee of directors began an internal investigation. AIG’s accounting firm, PricewaterhouseCoopers, was brought in to comb through the company’s books. “They were finding problems everywhere,” recalls a former AIG executive. It turned out that certain aspects of FP’s derivatives accounting were incorrect. Some reinsurance transactions had to be unwound. Deals that walked right up to the line—which PWC had once okayed—were now ruled out of bounds. And there was another problem: the company had promised to cooperate with Spitzer, and he wanted to depose Greenberg. The board wanted to know whether Greenberg was going to plead the Fifth Amendment. Greenberg said he wasn’t sure. How could the CEO take the Fifth and keep his job?
The climactic board meeting took place on March 13, 2005. It lasted all day, with the directors discussing among themselves whether to fire Greenberg and Greenberg, calling in from his boat and his airplane, arguing that he should keep his job. He had an odd way of going about it, though. “You people don’t know what you’re doing,” he berated them. “You don’t even know how to spell insurance.”
Toward the end of the meeting, the accountants from PWC told the board that it would no longer vouch for the firm’s books if Greenberg stayed as CEO. And that was that. Greenberg was allowed to stay on as chairman of the board, though that arrangement wouldn’t last long, either. His replacement as CEO was a bland AIG lifer named Martin Sullivan, who had spent his entire career on the insurance side of AIG. Although Sullivan had a tremendous amount of insurance experience, because of