AIG, Former CEO Greenberg, CFO Smith Agree to Binding Arbitration

American International Group Inc. and former CEO Maurice “Hank” Greenberg said Monday they have agreed to privately arbitrate a shareholder lawsuit, and possibly another, potentially ending a an extended legal fight between the parties.

Relations between Greenberg and AIG have thawed with the appointment of Robert Benmosche as AIG’s chief executive, both men told Reuters in interviews last week. Greenberg said at that time that he wanted to settle outstanding litigation with AIG.

The agreement, which also involves former CFO Howard Smith, signals a reversal in the contentious relationship between AIG and its former executives. It comes after a U.S. judge ruled against AIG in one of the cases earlier Monday.

Under the agreement, all the parties immediately agree to arbitration for AIG’s derivative litigation against Greenberg and Smith, which combined several shareholder lawsuits against AIG’s former top management. AIG assumed responsibility for the complaints.

In addition, the parties agreed to consider arbitration for lawsuits involving Starr International Co. Inc. — a company run by Greenberg. The agreement is subject to final decisions on any appeals in those lawsuits.

Among the cases is a lawsuit that Greenberg, Starr International and the Starr Foundation brought against AIG in March 2009 after it suffered large losses from credit default swaps linked to the collapse of the U.S. housing market.

An AIG spokesman declined to comment further on the arbitration agreement. Greenberg and Smith were not immediately available for comment.

AIG, Greenberg and Smith said in a joint statement that the arbitration would begin no later than Oct. 15, 2009, and end by March 31, 2010.

The parties will each propose five potential candidates to serve as arbitrator by Sept. 15, and one will be selected by Sept. 30.

Earlier Monday, a federal judge in New York ruled against AIG in one of the Starr International cases, in which the insurer sought $4.3 billion in damages for what it alleged was a mismanaged stock retirement plan composed of AIG shares.

AIG had argued that Starr International breached a verbal agreement in the early 1970s in which Starr pledged its AIG shares to fund a long-term deferred compensation scheme for top AIG executives.

The U.S. judge in New York rejected the claim, reaffirming a jury’s July ruling on the matter.

Greenberg and AIG have been embroiled in legal disputes since he was forced to resign in 2005 amid an accounting scandal, after nearly four decades of helming the insurer.

The ouster is unrelated to the losses that nearly drove AIG into bankruptcy last year, forcing it to seek federal help, resulting in a taxpayer lifeline that has grown to as much as $180 billion.

(Reporting by Joe Rauch and Lilla Zuill; Editing by Richard Chang)

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