November 13, 2008 / 6:28 PM / 11 years ago

Greenberg, Whitehead get last laugh on Spitzer

NEW YORK (Reuters) - It took a while, but two financial industry icons who tussled with former New York Governor Eliot Spitzer have enjoyed the last laugh.

John Whitehead, chairman of the World Trade Center Memorial Foundation and a board member of the Federal Reserve Bank of New York, speaks at the Reuters Finance Summit in New York November 12, 2008. REUTERS/Brendan McDermid

Former Goldman Sachs (GS.N) Chairman John Whitehead and former American International Group Inc (AIG.N) Chief Executive Maurice “Hank” Greenberg said they were pleased that Spitzer, who steamrolled them as New York’s crusading attorney general, had resigned in March for his involvement with prostitutes.

“I’m glad that it turned out as it did. He created his own doom,” Whitehead said at the Reuters Global Finance Summit earlier this week. “He still has not apologized for calling me a liar. I still feel some anger.”

A spokeswoman for Spitzer declined to comment.

Back in 2005, Spitzer was the state’s attorney general, riding high after tackling conflicts of interest on Wall Street and using the state’s powerful Martin Act to force brokerage firms to pay big settlements. The 1921 state law gives an attorney general the muscle to fight financial fraud, especially with subpoena power.

Spitzer took on AIG, filing a lawsuit that accused the insurer and CEO of manipulating financial results and engaging in fraud.

In April 2005, Spitzer said in a television interview he had strong evidence that Greenberg personally committed fraud when he initiated a deal between AIG and General Re, a reinsurance company owned by Warren Buffett’s Berkshire Hathaway Inc (BRKa.N).


Whitehead, at the time the head of the Lower Manhattan Development Corp, rushed to Greenberg’s defense within days with an opinion piece in the Wall Street Journal that criticized Spitzer for prosecuting Greenberg in the media.

“I had no basis to criticize him, other than as a citizen, for what I thought was unfairly abusing the rights of the attorney general, who was calling somebody guilty before bringing any charges against him,” Whitehead told the Reuters Summit on Wednesday.

In December 2005, Whitehead had penned a second Journal op-ed article, headlined “Scary,” revealing that shortly after the first article appeared Spitzer had called him and declared, “It’s now a war between us. I will be coming after you. You will pay the price.”

Spitzer has denied making the threat. In January 2006, he acknowledged their conversation, and said he regretted the exchange with Whitehead.

“He picked a tough target when he threatened me,” said Whitehead, who fought in the U.S. Navy during World War II, served as a deputy secretary of state under Reagan and remains highly regarded in New York’s financial circles.

But at the time, Whitehead had challenged an immensely popular Spitzer, who rode his reputation as an aggressive prosecutor to the governor’s mansion. Fifteen months later, Spitzer, once dubbed the “Sheriff of Wall Street,” resigned amid a scandal over his involvement with a prostitution ring.

Earlier this month, U.S. prosecutors said that Spitzer would not face criminal charges. The U.S. Attorney said his office found no evidence that Spitzer misused public or campaign funds.

Likewise Greenberg, speaking at another Reuters Summit session, said he is not shedding tears over Spitzer’s demise.

After enjoying years of glowing press, the Spitzer scandal inspired weeks of feverish tabloid coverage and brought notoriety to one prostitute who spoke freely about her $1,000-an-hour services to Spitzer.

“I wouldn’t say he got his just desserts,” Greenberg said. “He already had the dessert, I suppose.”


On a more serious note, Greenberg said he was grateful for his friend’s public support: “John Whitehead is a great man. He’s a man of principle and courage and loyalty.”

Greenberg, who is 83, complained that Spitzer had abused the state’s laws and took full advantage of an adoring press.

“The Martin Act should have been repealed a long time ago. I think it serves as an incentive for a politician who happens to be elected attorney general and who has higher, bigger aspirations and uses that office for his or her own benefit.”

AIG’s board ousted Greenberg in March 2005 as U.S. and state regulators swarmed. In February 2006, AIG reached a $1.64 billion settlement with U.S. and New York regulators.

Ultimately, the state threatened but never filed criminal charges. Still, the state’s case against AIG has been painful for Greenberg, a World War II veteran who had built AIG into the world’s biggest insurer during nearly four decades as chief executive.

For the past three and a half years, Greenberg has remained an important player, running C.V. Starr, which had been AIG’s largest shareholder, criticizing the insurer’s board and management, and lobbying Washington to find better ways to save

Maurice Greenberg, the chairman and chief executive of C. V. Starr and Company, speaks at the Reuters Finance Summit in New York November 12, 2008. REUTERS/Brendan McDermid


He also continues to defend himself in the state’s civil suit that was picked up by Spitzer’s successor as attorney general, Andrew Cuomo.

To be sure, questions remain about transactions Greenberg’s AIG made with General Re. In a state deposition last month, Greenberg invoked the Fifth Amendment and declined to answer questions about his role in a sham $500 million reinsurance transaction with General Re that helped masked a shortfall in AIG’s loss reserves.

In May this year, he received a Wells Notice from the Securities and Exchange Commission, which meant the agency was considering civil charges. Greenberg, who is also locked in a legal battle with AIG, has spent an estimated $250 million on legal and public relations fees.

Editing by Jeffrey Benkoe

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