What's a Gyrodyne

I recently encountered the name Gyrodyne, as that of the plaintiff in a lawsuit against Phillip Goldstein and Bulldog Investors. My reaction was that same as I imagine yours would be (given my conception of who "you" are -- a digression that you wouldn't want me to enter into either). Who or what is Gyrodyne?

I cared because the name of Phillip Goldstein is very familiar to me. I've covered some of the litigation in which he's been enmeshed. When the SEC sought to require hedge funds to register as investment advisers, most of the hedge fund industry thought this a small matter, a little added paperwork, much easier to comply with than to fight.

Goldstein fought. He contended that the SEC didn't have the statutory authority it claimed, and he pursued that question, successfully, to the US Supreme Court, destroying the registration mandate.

I saw Mr. Goldstein at a convention of activist investors in California last month, and the moderator of one particular panel in which he was a participant introduced him as a "libertarian hero."

When that moderator opened the floor to questions, I spoke very briefy to Phil Goldstein, not about the registration matter but about the idea of "empty votes," the hedging away of the real economic interest of shares to retain only their voting value. Some scholars have thought such a tactic to be a real threat to rational corporate governance, others have thought it a phantom.

That, then, was the gist of my question. I may discuss the "empty votes" controversy here another time. For now, let it stand only as evidence that I have followed Goldstein's career. For that reason, I care when I run across a lawsuit in which he's a defendant.

The plaintiff, again, is Gyrodyne Company. Who's that? Its the owner of some industrial and commercial real estate on Long Island, NY.

Goldstein is apparently waging a proxy fight to take over Gyrodyne's board of directors, on the ground that the company has depressed its own value through a "poison pill" discouraging potential acquirers.

Gyrodyne responded with a lawsuit in Manhattan federal district court last week, saying that Goldstein/Bulldog is using false and misleading proxy materials.

The following is directly from Gyrodyne's press release:

"We filed this suit ... to ensure that our shareholders receive complete and accurate information about the Bulldog group's interests, plans and motivations that is required by the federal securities laws....We will continue to take appropriate steps to protect the interests of Gyrodyne shareholders."

As kids of the playground, watching a fight develop, might say at this point: Ooooooo.

Gyrodyne's annual meeting is a week from today. I hope to come back to this before then.

Harry Potter and the structured investment vehicles

I wrote yesterday about HSBC and a dissident investor, Eric Knight, and promised I'd get back to the subject today. That, as it turns out, was a good bit of timing.

At about the time I was writing that post, HSBC's London office was making an announcement: its going to bail out two of its structured investment vehicles (SIVs). Those of you who don't know the jargon: please don't let those eyes glaze just yet. This is big.

An SIV is sponsored by a larger organization, but its assets and liabilities are kept off the larger institution's balance sheet.

The sponsoring organization isn't required to rescue SIVs. The fact that HSBC has voluntarily done so, and is taking their troubled assets ($45 billion in mortgage-backed securities) onto its own balance sheet means something because it is the first of the world's major banks to do so in the current credit crunch.

HSBC isn't acting altruistically of course. It's protecting its brand name. Outsiders are often confident in investing in, or becoming the counter-party of, an off-balance-sheet vehicle with a big name sponsor, precisely because they feel that the big sponsor won't allow it to default. HSBC wants them to continue to feel that way -- at least, when it's the sponsor. This is worth what may end up being a big hit.

Still, HSBC's brass deserve some credit for corporate statesmanship here. They're the first of the major banks to take this hit. An alternative might have been for their troubled SIVs to liquidate themselves into the market, with an asset fire sale. But that might have triggered imitators, and a rush for the exits.

What happens in a building with narrow doors when everyone tries to exit at once?

This time, the world of finance might not have to find out.

All that said, what were Mr. Knight's contentions about the failings of the bank? His ad in yesterday's WSJ said that HSBC has perennial stock market underperformance compared to its peers. It has pursued geographical diversification instead of comparative advantage, it has never achieved the optimal scale in key markets -- the UK, the USA, and France. According, he thinks, HSBC should play to its strength and its origins. It should move its headquarters away from London, into China. The People's Republic has rules limiting the activities of "foreign" banks and the HSBC could have much more freedom of action in the region it knows best if it ceased to be "foreign" there.

He is also unhappy with the way in which the top execs of HSBC decide upon their compensation. He wants the bank to make public minutes of all meetings in which they discussed their bonuses. So far, they've refused.

As far as I can tell, if they have helped avert the worsening of the credit squeeze by their announcement yesterday, they've earned something of a bonus.

Okay, the "Harry Potter" reference above was a bit misleading. Still, I was going to write "HSBC and the structured investment vehicles" but that just triggered the association to the characteristic Rowling's titles and I couldn't resist.

HSBC Critic Buys Ad Space

The founder, principal, chief-cook-and-bottle-washer of Knight Vinke Asset Management (KVAM) has renewed his criticism of HSBC. Today's Wall Street Journal contains Eric Knight's indictment of the giant global bank, taking up two thirds of page B6.

HSBC traces its history back to 1865, when a Scot named Thomas Sutherland decided that there was money to be made in providing banking services along China's coast. He set up a bank in Hong Kong in March and another in Shanghai in April -- hence the name, "Hongkong and Shanghai Banking Corporation," which gave rise eventually to the more economical name: HSBC.

Skipping forward a bit ... HSBC shares are traded on four exchanges: Hong Kong, Paris, London and New York. It isn't literally true that trading never stops -- a really persistent trader/specialist might allow himself a bit of sleep after the New York close and before the Hong Kong opening bell. But not much.

Sticking to New York and to US dollar denominations: HSBC's stock was trading in a range between $96 and $98 for much of October. Through November, it has broken decisively out of that range -- downward. The price is now in the mid $80s. This is unsurprising, given the credit turmoil in the US especially. Why shouldn't investors in HSBC simply ride out that turmoil and wait for a rebound? What in particular makes Mr. Knight unhappy with management?

I'll leave that as my cliffhanger. More in tomorrow's entry.

Who Wants to Buy Nymex?

It has been a big year for consolidation among stock, options, and futures exchanges worldwide. It just seems to make sense, as the geographical proximity grows less relevant to investors, traders, and brokers alike.

The London Stock Exchange is now about one-third owned by enterprises that are themselves the arms of two rival Gulf states. Eventually, it seems the LSE will enter into a combination either with the Qatar Investment Authority or with the Dubai Borse. Which one? -- that is in Allah's hands.

The Chicago Mercantile Exchange and the Chicago Board of Trade, once fierce rivals despite their proximity, are now among the parts of the CME Group.

The New York Board of Trade is now a subsidiary of Atlanta based Intercontinental Exchange.

That will suffice for examples for now, though it would be easy to lengthen the list, even staying strictly within developments of 2007.

This leaves the question: why is Nymex still a stand-alone? and how long will that remain the case?

Steven Sears, writing in Barron's recently, suggested one reason. The internal politics at Nymex is, he says, of such distressing complexity that a potential acquirer might wisely want to steer clear of it. In the same way that a wise superpower might want to avoid sending an occupation force to a country with ... oh, never mind.

Shake-up at H&R Block

The tax-preparation company, H&R Block, announced yesterday that its Chairman and CEO, Mark A. Ernst, has resigned from both of those posts.

Ernst has been replaced as chief executive, on an interim basis, by Alan Bennett.

The new chairman is Richard Breeden, and that (for proxy partisans) is the story here.

Breeden has wanted Ernst out of the way for some time. Breeden, who was the chairman of the Securities and Exchange Commission through most of the administration of George H.W. Bush, has been keeping busy recently as the manager of a hedge fund, aptly called Breeden Partners. In that capacity, he's been a very activist stockholder in a variety of the companies in his fund's portfolio.

One of those companies, of course, is H&R Block. And Breeden's contention is that under Ernst, the company has drifted from its moorings as a tax-services company, ineffectively dabbling in other fields. He's presumably going to be a back-to-basics kind of chairman.

Breeden's unhappiness on this point appears to have preceded, but it was certainly fed by, this summer's subprime mortgage crisis, which hit H&R's mortgage lending unit especially hard.

One analyst is quoted in today's WSJ saying: "H&R Block has delayed recogizing the losses in their subprime businesses ... because they were trying to get the sale done with Cerberus."

Cerberus. That darned dog shows up everywhere, doesn't he?

But congrats to Breeden, and I hope his victory doesn't end up giving him indigestion. I may need the services of the company he's now heading ... next March or thereabouts.

I wish everyone celebrating the holiday tomorrow the best for the long weekend. You'll hear from me again here on Sunday.

Proxy Rules Debate

The ongoing debate over the SEC rules and "proxy access" reached the banking committee of the US Senate last week.

As regular readers of my other blog, Pragmatism Refreshed, (cfaille.blogspot.com) know, I'm all in favor of the Second Circuit's AFSCME decision, and in favor of letting it stand. The decision opened the doors for a sort of meta-election, in which dissident stockholders can get on a proxy ballot asking the whole body of shareholders to determine rules for directorial elections.

I'm happy about AFSCME not despite the possibility that it will prove a "slippery slope," to other avenues for shareholder democracy, but largely because it might.

By itself, this is a small matter. I can't imagine a lot of election-rules tinkering breaking out in corporate America as a result of anything the SEC does or doesn't do, nor do I think a lot of good would be accomplished it it did.

Still, the shareholders own the company, and it is good to remind the company management, their employees, of that simple fact.

At any rate, the SEC has under consideration two rule proposals which would (to differing degrees) cut back on the AFSCME precedent. Those rules were the subject of the banking committee hearing last week, and SEC chairman Cox gave the usual bureaucratic on-the-one hand but on-the-other-hand sort of testimony.

I think the very fact that the SEC is short handed now will prevent it from doing anything rash in the immediate future. Its good to know, though, that the members of that agency know that the legislature, with its oversight responsibilities in mind, is looking over their shoulder.

Votes to Withhold

Suppose the incumbent directors of a company are running unopposed for re-election. For whatever combination of reasons, opposition has developed too late to meet the deadline for the filing of an alternative slate. But, now, opposition HAS developed.

Is there any significant manner in which it may express itself? Yes.

Stockholders may withhold their votes (or, as it is sometimes put, they may vote Withhold). Sometimes an impressive showing in a vote-withhold campaign will make the point.

The already-classic example of this played out at Disney in 2004 - 2005. It was in March of the first of those years that Disney's shareholders withheld 43% of the votes for the re-election of Michael Eisner as a member of the board.

The campaign that achieved this result was led largely by Roy Disney, Walt's nephew. Eisner remained on the board, but the other members reacted to the 43% vote by stripping him of the chairmanship. He stepped down as CEO a little more than a year later.

This comes to mind right now because I've been following the aftermath of a shareholders meeting at a company somewhat less visible than Disney: at Sparton Corp., a Michigan based manufacturer of circuit boards. There was a withhold campaign here, too.

in August one activist investor declared in a letter that he has "become increasingly troubled by the Board's inaction and acquiescence to Sparton's perennially underperforming management team—a team that has presided over a decades-long decline in both the Company's book and stock values." The meeting took place in October.

That investor, Andrew Shapiro, told me when I interviewed him early this month that he has been somewhat surprised that Sparton hasn't yet disclosed the size of the "withhold" vote, though he infers from what the company has disclosed that the number is 30%.

He also advocates what one might call a stand on fiduciary principle -- the members of the board should press the CEO to doff his other hat, as trustee of the Sparton Defined Benefit Pension Plan. This is a conflict: the pension plan has over-invested in Sparton common stock, Shapiro contends. This in turn has contributed to the entrenchment of the incumbent board.

Although the spelling of the company's name isn't quite right for it, I did try to work in some reference to a stand at Thermopylae in this blog entry. Really I did. I couldn't bring it off, though, unless this meta-reference counts.

The time for gratitude approaches

Let's cast our minds back to the earlier months of this year, because I'd like to say something about two decisions in the Delaware Chancery Court for which members of incumbent boards of directors might be a bit grateful when they bite into their Turkey or Turducken or tofu creation this coming Thursday.

In January 2007. an activist hedge fund, Harbinger Capital Partners, sued Openwave Systems, a California software company of which it held a substantial block of stock.

Harbinger said that it had nominated two candidiates for the board of directors, and that Openwave was putting obstacles in the way of a fair vote.

The matter was tried in March, and the court issued its decision in May. In essence, the court acknowledged that Openwave's bylaws governing elections were on one reading blatantly contradictory and on any reading at least confusing. Still, it upheld the exclusion of the slate that Harbinger had sought to nominate.

“Confusion does not excuse Harbinger’s failure to comply,” reads one subhead in the court’s opinion, issued in May. It was all reminescent of the butterfly ballots in a certain Florida election in November 2000. Yes, they were confusing, but the results stand.

Another hedge fund, Pershing Square LP, challenged another incumbent board of directors, and brought a claim before the Delaware Chancery Court at around the same time that Harbinger's was pending.

In the course of a proxy fight concerning Ceridian, Pershing Square had sought access to letters written by senior management figures. It suspected (because of a leaker) that the letters contained allegations of mismanagement on the part of a former chief executive of Ceridian and an absence of oversight on the part of the board.

The court decided that the stockholders weren’t entitled to the letters at issue. “A corporate defendant may resist demand where it shows that the stockholder’s stated proper purpose is not the actual purpose for the demand,” it wrote. This is all rather unkind to the old-fashioned notion that shareholder own the darned company. Shouldn't they be able to demand pertinent documents without undergoing a session on the couch to alow Dr. Freud to figure out their 'real' motivation.

Of course, it's Oedipal! The hedge fund, the court rather accusatorily opined, just wanted “to find a legal vehicle by which Pershing Square can publicly broadcast improperly obtained confidential information.” The court said that it must protect the confidentiality of certain exchanges in order not to chill the candid expression of views among executives and directors, so … Pershing lost.

Delaware is still largely an incumbent board's state, which is of course why company's continue to incorporate there.

Do I have any reforms to propose? Heck, no. Hedge fund managers are big boys and they can take a couple of set-backs like this. Over time, the pressure of economic reality and ther litigation it generates does transform legal systems, even Delaware's corporate law. But it is a slow process, as perhaps it should be, and the gladiators give some of us spectators some grist for our analytical mills.

For which I am grateful.

Four Days a Week

Just a scheduling note. I've fallen into a pattern and it makes sense to be explicit about it.

For the foreseeable future, I'll be adding entries to this blog each day from Sunday until Wednesday.

Thursday through Saturday, my blogging is confined the Pragmatism Refreshed, a different and less focused venue. cfaille.blogspot.com.

Since Sundays allow lots of time, I expect to create entries for both PR and PP on each Sunday, making me a four-days-a-week presence in each place.

Your comments, of course, are always welcome.

News Sense

Okay, my news sense isn't always infallible. Sometimes I think I'm on to something big, and it fizzles.

Such is the case with the Microsoft annual meeting held yesterday. There were two shareholder resolutions, and I discussed them in Monday's entry. There's really nothing to say about yesterday's meeting, though, except that all members of the board of directors were re-elected and, as the company management had recommended, both resolutions went down to defeat.

Sometimes I sense a story in the world of academic in-fighting, too. This can work out, but might not.

On Friday, I wrote a story for HedgeWorld (my dayjob) about such an academic dispute, in the world of quantitative finance. I over-state the degree to which I understand such things when I write of them, but hey -- I did take a course in calculus once.

The underlying conflict is between Nassim Taleb and the remaining authors of the famous/infamous Black-Scholes articles concerning the pricing of stock options. Fischer Black, alas, is deceased. The other namesake of the formula, Myron Scholes, is very much alive, as is Robert Merton.

Both Scholes and Merton won a Nobel Prize for their work on Black-Scholes, sometimes more generously called Black-Scholes-Merton. But Nassin Taleb, the author of a couple of widely-read books on risk and its management, says that the formula in the form they offered it, doesn't work very well. Options traders don't use it. Further, he says, it wasn't original enough with them to have their names on it, so it should be called Bachelier-Thorp if referenced any more at al.

I thought this was a big story. I did the usual consacientious reporterly work, wrote up various views of Black-Scholes on the one hand and Taleb's challenge on the other, and my editors posted the result at HedgeWorld.

One of the responses I've had since then has been to the effect that it isn't really newsworthy. Some bitter second-rate fellow envies the Nobel Prize winners and is trying to tear them down: why is that a story? one reader asked me.

All I could say is that arguing over what is newsworthy and what isn't is a mugs game, and I declined to get involved in it. She might be right, and Taleb might simply disappear.

Or, this might be the start of something big, and my readers would have heard of it early on. Damned if I know which is the case.

UK Regulators Propose a Rule

The UK's Financial Services Authority published a "consultation paper" yesterday -- that is, a request for public comment on a proposed new regulation.

The subject of the proposal is an instrument known as a "contract for difference." This is a contract in which a party is paid when an underlying asset increases in value or perhaps pays out money when the asset falls in value (takes the long side), or vice versa (for the opposite party of course takes the short side). The significance of the CFD is that the speculator -- typically a hedge fund -- never acquires title of the underlying asset, so the transaction unbundles title from economic risk.

The FSA is concerned that undisclosed CFDs can mess up the system of corporate governance. Consider, for an easy case, a corporation's stockholder who has sold CFDs to a hedge fund. The hedge fund has the "long" position -- it has an interest in an increase in the value of that stock. The stockholder now has a "short" position -- it will receive money if the stock price falls. The stockholder still has title to the stock, though, and accordingly still has a vote in proxy contests.

Will the stockholder exercise that vote in such a way as to sabotage efforts of corporate management, or to help install an incompetent board, so as to benefit from the difference, the price fall, that will result?

That's an easy problem to imagine, but not the FSA's central concern. After all, look at the matter from the point of view of the hedge fund that bought the long position. It wouldn't be likely to do so if it thought the stockholder was about to sabotage the company so blatantly. Or, at least, it wouldn't make the same mistake twice. Can't the contracts between the long and short parties be trusted to ensure that the economic interest and the voting interest remain in some alliance?

Now we get to the real regulatory concern. The contracts can do that job all too well. The FSA is worried that hedge funds and others with CFD, but without titles to the stock, are exercising informal control over how the stock is voted, and that this makes the corporate governance system too opaque -- management and the other shareholders don't know who is pulling what strings.

Accordingly, the FSA's proposal focuses on disclosure. In essence, they want managements to be able to flush out all CFD holders with an economic interest of 5% of more of their equity.

There is a tax angle to this, too. CFDs are a flourishing part of the UK equity market, accounting for 30% of all trades, because in Britain there's a 0.5% stamp duty levied by the government on the sale of the actual shares, the underlying asset. CFDs are a way of playing the market without paying the tax, and the "unbundling" of votes from economic interest is more of a side effect than a positive benefit of these instruments.

The bottom line though is that if you want to comment on the FSA proposal, you've got three months. The clock is ticking.

Microsoft annual meeting

Microsoft is holding its annual shareholders meeting in downtown Seattle, Washington, tomorrow.

There are two contested shareholder resolutions on the agenda. One proposal, from the New York City Pension Fund, requests that "management institute policies to help protect freedom of access to the Internet" including certain minimum standards. The NYC pension fund is managed by the office of the comptroller there, William C. Thompson.

Mr. Thompson notes, on behalf of his proposal: "that some authoritarian foreign governments such as the Governments of Belarus, Burma, China, Cuba, Egypt, Iran, North Korea, Saudi Arabia, Syria, Tunisia, Turkmenistan, Uzbekistan, and Vietnam block, restrict, and monitor the information their citizens attempt to obtain."

The company recommends through its proxy statement that shareholders vote "no" on this: "In our view the most effective approach toward this subject requires more flexibility than the proposed standards would allow. We believe that availability of our products and services has increased the ability of people worldwide to engage in free expression and has helped transform the economic, cultural, and political landscape of nations throughout the world."

The second proposal would establish a board committee on human rights. The company likewise recommends a No vote on this one.

Miscellaneous News

Three things today:

1) Icahn has reached a confidentiality agreement with BEA Systems Inc. I wrote about BEA and its rebuff of Oracle in the waningdays of October. Management apparently hopes to persuade him that they are in the right in insisting that they won't sell control for anything less than $21 a share, and they'll share confidential material with him in order to pull off this feat of persuasion.

2) AIG reported its third-quarter operating profit Wednesday: and the news was bad. The third-quarter operating profit fell by 13% percent, or 27 cents a share below analysts' estimates.

In a conference call the following day, AIG honchos warned that revenue in some parts of the company probably wouldn't improve in 2008.

It warned in a conference call on Thursday that revenue in some parts of the company, such as the mortgage insurance unit, probably would not improve in 2008.

This has had the predictable effect upon AIG's stock price and may well lead stockholders to look kindly upon whatever Greenberg is cooking up.

3) By the way, I'd like to say a big "hello" to anyone who is reading this from Labaton Sucharow LLP, a prominent securities-litigation law firm. Labaton reprsents the Ohio Public Employees Retirement System, which is lead plaintiff in a lawsuit against AIG and Greenberg for their use of sham reinsurance agreements that made the books look unrealistically favorable and allegedly induced pension fund executives to buy and/or hold the stock when they wouldn't have otherwise.

I infer that somebody at Labaton has the job of periodically googling the name "Hank Greenberg" and writing a report on what he finds. In that case, he's reading this, too. Welcome.

Hank Greenberg's Resources

Now to the big question, to cap off this week's entries.

If Greenberg's filing means that he does plan a comeback, putting himself once again at the helm of AIG, then what are his chances of pulling that off?

The most obvious point is that he still has admirers. There are people who believe AIG's stock price has suffered from his absense, and who'd love to have him back. The price was above $70 before Spitzer pressed the issue that led to his departure. It immediately sank to $50, although it didn't stay that far down for very long. There's been a lot of zig-zagging since, but as of the close of business yesterday, Nov. 6, the price was at $62.05.

Of course, Greenberg's admirers might be wrong. For all we know the stock price might have been at $62.05 right now even if Spitzer had never interested himself in AIG, and Greenberg had never left. Or, it might be at $100. Alternative-universe hypotheses are difficult to test. Still, there is some sentiment in his favor.

There is also the China connection. Recall that the company got its start there. More important, the whole world seems to be heading to China right now. Optimism about China is the engine that has kept the world economy moving over the past few months as the US and the European nations have suffered through mortgage-market related problems.

Greenberg is said to feel quite at home in China. He helped the PRC get into the World Trade Organization. Last year, Long Yongtu, the chief negotiator for China's entry into the WTO, said to an interviewer: "Mr. Greenberg is the most famous U.S. business leader in this country. Perhaps most important, he is a long-standing friend of the Chinese people."

That's the sort of connection one has to count as a resource in a struggle for corporate control.

(This post will be my last on Proxy Partisans until Sunday. I'll confine my blogging for the remainder of the week to Pragmatism Refreshed. cfaille.blogspot.com Feel free to drop by.)

Greenberg Keeps Busy

So what has Greenberg been doing since he left AIG in 2005? Quite a lot. He started his own financial-services company, C.V. Starr & Co. -- tellingly, that name alludes to his mentor, the founder of AIG, Cornelius Vander Starr.

Greenberg has also occupied a seat on the board of directors of the Council on Foreign Relations, involved himself with a variety of philanthropies and ... when this much doesn't keep him busy ... he's been litigating, both as a defendant and as a plaintiff.

AIG settled with Spitzer in February 2006, but Mr. Greenberg, as an individual defendant, continued and continues to fight.

In September 2006, the state of New York dropped two of the six charges it had brought againt Greenberg (in a civil case, I ought to add). Four charges remain. Depending on who you believe, this was either a matter of dropping the peripheral matters to focus on the core of the case, or an admission that the case was always a witch hunt and is now just a continuing search for technicalities to justify the expense.

Also, AIG and Greenberg have litigated against one another, including one case filed by each against the other in Delaware state court this summer.

Two months ago, Mr. Greenberg invoked his fifth amendment right against self-incrimination in refusing to answer questions from the SEC.

But what is at stake in any coming battle for control over AIG isn't just a grudge match, dramatically interesting though the idea may be. It is the question of how deeply involved AIG has become with the mortgage market and the problems that has caused this autumn for so many other financial giants. Is it hiding something important here, or will it likely emerge unscathed.

It is begining to appear that anyone who does emerge unscathed will be strengthened, not on general philosophical "that which does not kill me makes me stronger" grounds, but because so many competitors will have been ... well ... scathed.

The history of AIG

American Insurance Group is the sixth largest company in the world, according to Forbes.

It was founded by Cornelius Vander Starr, a native of California, of Dutch descent, 88 years ago, set up as a Shanghai-based operation selling insurance to the Chinese.
It was marvellously successful, and soon had operations around the world. Of course with the Communist takeover in the 1940s, the company moved its headquarters to New York.

Greenberg climbed up the corporate ladder as Vander Starr's protege, and became his successor when the company founder retired in the late 1960s. Soon thereafter, the company went public. Greenberg remained its chief for more than 35 years.

In October 2004 the New York Attorney General Eliot Spitzer, who has since become Governor, announced a lawsuit against Marsh & McLennan Companies -- a brokerage -- for steering clients to preferred insurers with whom the Company maintained lucrative payoff agreements, and for soliciting rigged bids for insurance contracts from the insurers.

Spitzer also announced in a release that two AIG executives had pleaded guilty to criminal charges in connection with all this steering and rigging.

The resultant brouhaha led to Greenberg's departure early the following year. In February 2006, the State of New York and the post-Greenberg management at AIG agreed to a settlement, including a fine of $1.6 billion.

Greenberg hasn't taken well to retirement. One doesn't get the impression that he's spent a lot of time at the Elba fishin' hole, kicking back with a brew. We'll get into what he HAS been up to, tomorrow.

Greenberg to Return From Elba

I can just imagine that vein on Hank Greenberg's forehead. It's been throbbing painfully for two years now, ever since the board at American International Group forced him out as CEO and chairman.

He had turned that insurance company into a financial empire, and he must have felt some proprietary interest in it. Yet those who had been riding along on his coattails turned on him at the first whiff of scandal. That, at least, must be how it seemed to him.

Now, he may think of himself as a certain ex-Emperor on Elba, about to make his return. Such I infer, anyway, from Friday's news.

Greenberg has filed a document with the Securities and Exchange Commission that says that he and entities he controls, believe "there are opportunities to significantly improve the Issuer's [AIG's] performance and strategic direction, as well as the value of their investment."

The filing commits Greenberg to nothing, not even to "holding discussions" with other shareholders, a startlingly radicial possibility it mentions.

Why does one file a document with the SEC that says in effect, "I'm not all that happy with the return I'm getting and I might talk to some others to see if they feel the same way"? People who hold large chunks of stock in a publicly owned company are required to keep the public, and so the management of that company, apprised of their intentions, so there are no takeovers-by-ambush.

Despite all the cautious lawyerly wording, then, it appears that Greenberg is setting the stage and some sort of struggle for control may be in the offing.

Cool. Those of you fans who are new to corporate skullduggery might now have a lot of questions. Like: how important is AIG? What was the scandal that pressed Greenberg to give up the corner office? What resources does he have if he is in fact seeking to march on Paris? Why does he file this just now? I hope to address these in coming days.