Former American International Group Inc Chief Executive Maurice "Hank" Greenberg said New York's attorney general should be barred from invoking a 91-year-old state law in a fraud case over two suspect reinsurance transactions.
Greenberg and co-defendant Howard Smith, AIG's former chief financial officer, sought permission on Monday to appeal to the state's highest court, the Court of Appeals, a May 8 appellate ruling letting Attorney General Eric Schneiderman pursue civil fraud claims against them under the state's Martin Act.
That ruling by the Manhattan appeals court cleared the way for the 7-year-old case to go to trial.
Investigators claim a transaction with General Re Corp, a unit of Warren Buffett's Berkshire Hathaway Inc, helped AIG inflate loss reserves by $500 million without transferring risk, while a transaction with Capco Reinsurance Co helped AIG hide more $200 million of losses. Both transactions took place more than a decade ago.
Unlike under federal law, the Martin Act does not require investigators to prove intent in order to prevail on a securities fraud claim.
According to David Boies, a lawyer for Greenberg, a key issue is whether Schneiderman may use the Martin Act "to pursue a de facto securities class action" on behalf of shareholders, despite conflicting federal laws designed to promote "uniformity and certainty" in regulating securities.
In a court filing, Greenberg and Smith said that power would make "every executive of a New York company or a company with shares traded on the New York Stock Exchange potentially liable - personally - for substantial damages for misstatements" by their companies, even absent proof of intent or reliance.
Granting such power would have "far-reaching implications for New York's continuing role as an economic and financial capital," they added.
James Freedland, a spokesman for Schneiderman, said: "We are confident that their latest attempt to reverse decades of settled law to escape responsibility for their misconduct will be rejected."
Greenberg and Smith were first sued in 2005 by Eliot Spitzer, then New York's attorney general. Spitzer's successors Andrew Cuomo and Schneiderman have continued to pursue the case.
"The main obstacle is that Martin Act actions fairly clearly aren't preempted by the securities laws," said David Skeel, a law professor at the University of Pennsylvania. "As a result, Greenberg has to argue that the action really isn't a Martin Act action - it's really just a private class action dressed up as a Martin Act claim."
While Greenberg's contention is "far from a silly argument," Skeel said "it will be tough to persuade a court to go along."
Greenberg, 87, left New York-based AIG in March 2005 after nearly four decades at the insurer's helm.
AIG's transaction with General Re led to five convictions and two guilty pleas of former officials of those companies. A federal appeals court threw out the convictions in August and a new trial has been scheduled for January 2013. Buffett was not accused of wrongdoing.
The U.S. government still owns 61 percent of AIG, following $182.3 billion of taxpayer-funded bailouts.
Greenberg's company, Starr International Co, once AIG's largest shareholder, has sued the government for $25 billion over the bailouts, which it has called unconstitutional.
The case is New York v. Greenberg et al, New York State Supreme Court, Appellate Division, 1st Department, No. 5297.
(Reporting by Jonathan Stempel in New York; editing by Andre Grenon)