For those who have an interest in entrepreneurship, or the history of the insurance industry, or just the recent business/regulatory history of the United States, I'd like to recommend a book, FALLEN GIANT: The Amazing Story of Hank Greenberg and the History of AIG (2006).
The book is the work of Ron Shelp "with Al Ehrbar." As usual that formulation means that Shelp is the insider guy, but Ehrbar is a professional writer who helped Shelp put this into shape for publication.
Shelp was a trouble-shooter and righthand man for Greenberg in the 1970s and 1980s. The book isn't a corporate PR department style puff piece, though. I don't think a puff piece would include this anecdote, about the kitchen for the company headquarter's dining room.
"At one point [circa 1981] there was an equal opportunity suit threatened by an Irish waitress against AIG because the dining room had exclusively Chinese waiters. To make matters worse, allegedly the Chinese weren't all legal immigrants. So a group of Irish waitresses were hired. They all quit within a relatively short time span because the Chinese made their lives absolutely miserable. I don't know what they did back in the kitchen, but it worked. Today, there are still all Chinese waiters but a few Chinese waitresses as well."
Balancing the Chinese with the Irish? It sounds like the recipe for a transcontinental railroad, not a personnel policy for a major corporation in the 1980s.
Just one more anecdote, then I'll leave you to discover the rest of this book for yourself. Some time in the early 1970s, AIG hired Tommy Corcoran as a lobbyist.
In 1975, Hugh Carey became Governor of New York, and a fellow named Matt Nimitz ran Carey's transition operation. Matt's office while he was doing this was in NYC, not Albany.
Anyway, Corcoran called Nimitz and said, "I am calling on behalf of AIG and we are very interested in talking to you and the Governor-elect about who the next State Insurance Commissioner will be."
Nimitz replied that he was busy.
Corcoran: "No problem, take this telephone number down and call me when you are free. It is a pay phone in Times Square and I will stay here until I hear from you!"
Corcoran was an old man -- and something of a legend within the Democratic Party. He had been part of the brains trust of FDR, and later of LBJ as well. A Carey appointee wasn't going to leave him waiting at a phone booth in Times Square. [Of course, this wouldn't work today, everybody has a cell and everybody knows that everybody has a cell.]
Nimitz made time for him. Later, Nimitz told Shelp, "I actually doubt now that he really was at a Times Square phone booth," but the ploy got Corcoran into Nimitz' office, and "in fact we chose an excellent insurance commissioner whom Hank and others felt comfortable with."
Showing posts with label Hank Greenberg. Show all posts
Showing posts with label Hank Greenberg. Show all posts
Wednesday, October 22, 2008
Wednesday, October 1, 2008
Three brief items
1. The credit crunch is having a predictable impact on merger and acquisition activity.
Still, a deal is a deal. Parties ought to be deterred from simply walking away when performance of their agreed-upon obligations has become onerous.
Vice Chancellor Stephen Lamb of the Delaware Chancery Court has refused to let Hexion Specialty Chemicals abandon its $6.5 billion buyout of Huntsman Corp.
Lamb's ruling came down Monday. "We are reviewing the decision and our options," said Hexion in a statement.
2. Ciena Capital has sought the protection of the bankruptcy courts. Ciena, a real estate lender, is 95% owned by Allied Capital, the bête noire of famed short seller David Einhorn.
Indeed, Einhorn wrote a book last year chiefly devoted to venting his frustrations at short selling Allied. He had begun making a public case for short selling, on the basus of the illiquidity of its portfolio, in the spring of 2002. Here's a link to an informative review of that book subscription required but free.
Short selling is all about timing. If you take a short position, you're betting not just that the stock will fall sometime, but that it will fall within the framework needed to make that position pay off. Einhorn's position in Allied over the period discussed inhis book was no diaster, but it proved no bonanza either.
No matter how badly the bankruptcy of Ciena may hurt Allied, then, it comes rather too late to vindicate views asserted in 2002. Though, let it be noted, Allied Capital stocks fell 14% yesterday, as general market indexes were rising.
3. Maurice Greenberg. A few days ago I would have saids that "Hank" Greenberg had given up on playing a continuing role at his old company, AIG.
He had filed a statement on September 25, after all, to the effect that he and entities under his control are selling 40 million shares of AIG stock. They took a big loss in doing so, too.
But AIG is being effectively nationalized, and its new Washingtonian masters want it to sell off assets.
This has created an opening for Greenberg to play a different sort of role. No longer as boss, no longer as quite so large a shareholder. But now he shows up as ... willing buyer.
Meanwhile the revolving door in from of the CEO office at AIG continues to twril. Greenberg sent his letter asking to be allowed to bid on the assets to ... Edward Libby. Who has been CEO for all of two weeks.
Still, a deal is a deal. Parties ought to be deterred from simply walking away when performance of their agreed-upon obligations has become onerous.
Vice Chancellor Stephen Lamb of the Delaware Chancery Court has refused to let Hexion Specialty Chemicals abandon its $6.5 billion buyout of Huntsman Corp.
Lamb's ruling came down Monday. "We are reviewing the decision and our options," said Hexion in a statement.
2. Ciena Capital has sought the protection of the bankruptcy courts. Ciena, a real estate lender, is 95% owned by Allied Capital, the bête noire of famed short seller David Einhorn.
Indeed, Einhorn wrote a book last year chiefly devoted to venting his frustrations at short selling Allied. He had begun making a public case for short selling, on the basus of the illiquidity of its portfolio, in the spring of 2002. Here's a link to an informative review of that book subscription required but free.
Short selling is all about timing. If you take a short position, you're betting not just that the stock will fall sometime, but that it will fall within the framework needed to make that position pay off. Einhorn's position in Allied over the period discussed inhis book was no diaster, but it proved no bonanza either.
No matter how badly the bankruptcy of Ciena may hurt Allied, then, it comes rather too late to vindicate views asserted in 2002. Though, let it be noted, Allied Capital stocks fell 14% yesterday, as general market indexes were rising.
3. Maurice Greenberg. A few days ago I would have saids that "Hank" Greenberg had given up on playing a continuing role at his old company, AIG.
He had filed a statement on September 25, after all, to the effect that he and entities under his control are selling 40 million shares of AIG stock. They took a big loss in doing so, too.
But AIG is being effectively nationalized, and its new Washingtonian masters want it to sell off assets.
This has created an opening for Greenberg to play a different sort of role. No longer as boss, no longer as quite so large a shareholder. But now he shows up as ... willing buyer.
Meanwhile the revolving door in from of the CEO office at AIG continues to twril. Greenberg sent his letter asking to be allowed to bid on the assets to ... Edward Libby. Who has been CEO for all of two weeks.
Monday, June 16, 2008
Chairman and CEO
More on AIG. Robert Willumstad is now chairman and CEO of AIG.
Willumstad isn't someone who was groomed within the company, one of Hank Greenberg's protoges. He was brought onto the board of directors and made its chairman (nothing like starting at the top) only a little more than two years ago, and almost a tear AFTER Greenberg's departure.
RW comes from Citigroup, where he was the chief operating officer and a candidate for the CEO post, though that never materialized.
A possible problem here is that although banking and insurance are related industries, they are sufficiently distinct (different sets of regulators and so forth) that some might question the relevance of RW's Citi experience.
At any rate, his appointment may head off any proxy fight. Greenberg remains an important stockholder -- sufficiently important that any new CEO will have to make peace with him -- will have to "reach out," as the cliche goes.
Willumstad, according to reports, has already done so.
In a letter he wrote in May, Greenberg stated the reasons for his dissatisfaction thus: "The company's problems are more than financial and extend far beyond its subprime credit exposure or approach to capital management. Core businesses are also deteriorating. U.S. life operations are stagnant. The company has lost its leading and unique market positions in China and Japan. The life business in Asia had been a crown jewel, but now the company's position has eroded. In Taiwan, the company must now find up to an additional $1 billion to cover losses. To what extent are Taiwan losses due to regulatory changes, as has been suggested, and to what extent are they attributable to the failure to hedge certain non-Taiwanese dollar denominated investments?"
Not a bad summary.
Willumstad isn't someone who was groomed within the company, one of Hank Greenberg's protoges. He was brought onto the board of directors and made its chairman (nothing like starting at the top) only a little more than two years ago, and almost a tear AFTER Greenberg's departure.
RW comes from Citigroup, where he was the chief operating officer and a candidate for the CEO post, though that never materialized.
A possible problem here is that although banking and insurance are related industries, they are sufficiently distinct (different sets of regulators and so forth) that some might question the relevance of RW's Citi experience.
At any rate, his appointment may head off any proxy fight. Greenberg remains an important stockholder -- sufficiently important that any new CEO will have to make peace with him -- will have to "reach out," as the cliche goes.
Willumstad, according to reports, has already done so.
In a letter he wrote in May, Greenberg stated the reasons for his dissatisfaction thus: "The company's problems are more than financial and extend far beyond its subprime credit exposure or approach to capital management. Core businesses are also deteriorating. U.S. life operations are stagnant. The company has lost its leading and unique market positions in China and Japan. The life business in Asia had been a crown jewel, but now the company's position has eroded. In Taiwan, the company must now find up to an additional $1 billion to cover losses. To what extent are Taiwan losses due to regulatory changes, as has been suggested, and to what extent are they attributable to the failure to hedge certain non-Taiwanese dollar denominated investments?"
Not a bad summary.
Tuesday, May 27, 2008
Amending a Complaint
The state of Ohio wants to amend a four-year-old complaint in its lawsuit against insurance giant AIG.
In 2004, that state's attorney general filed a class action on behalf of three public pension funds that had investment in AIG, seeking compensation for the losses those funds sustained because of certain accounting improprieties.
The accounting dispute (though not specifically Ohio's action) led to the ouster of Hank Greenberg as AIG honcho in 2005.
On Friday, May 23, the federal district court in Manhattan that is hearing the Ohio case, and several others with which it has been consolidated, issued an order on the scheduling of discovery -- the proceedings by means of which each party learns what it needs to know about the other party's case. Discovery is to be completed in February 2010.
Anyway, the AG's office must smell blood, because four years in, it was also on Friday that the office announced it wants to add claims to that complaint "relating to AIG's recent multi-billion dollar write-downs stemming from its exposure to problems in the residential housing market."
It has to have the permission of the court for this, of course, and there will be a hearing on the issue a week from today.
It is possible that AIG will consent to the amendment and the court wil grant it on that basis. If so, this would be a calculation in which AIG's lawyers decide it's easier to fight this new grievance under the same heading, that to require Ohio to file another lawsuit separately and fight them both.
It say that is "possible" because lots of things are possible. But my own impression is that Ohio is trying to shoehorn in some very different allegations into an established four-year-old action, that AIG's lawyers will likely make a lot of contrary noises, and that those noises will be heeded.
My guess, furthermore, is that some young eager-beaver in the attorney general's office got ahead of himself.
In 2004, that state's attorney general filed a class action on behalf of three public pension funds that had investment in AIG, seeking compensation for the losses those funds sustained because of certain accounting improprieties.
The accounting dispute (though not specifically Ohio's action) led to the ouster of Hank Greenberg as AIG honcho in 2005.
On Friday, May 23, the federal district court in Manhattan that is hearing the Ohio case, and several others with which it has been consolidated, issued an order on the scheduling of discovery -- the proceedings by means of which each party learns what it needs to know about the other party's case. Discovery is to be completed in February 2010.
Anyway, the AG's office must smell blood, because four years in, it was also on Friday that the office announced it wants to add claims to that complaint "relating to AIG's recent multi-billion dollar write-downs stemming from its exposure to problems in the residential housing market."
It has to have the permission of the court for this, of course, and there will be a hearing on the issue a week from today.
It is possible that AIG will consent to the amendment and the court wil grant it on that basis. If so, this would be a calculation in which AIG's lawyers decide it's easier to fight this new grievance under the same heading, that to require Ohio to file another lawsuit separately and fight them both.
It say that is "possible" because lots of things are possible. But my own impression is that Ohio is trying to shoehorn in some very different allegations into an established four-year-old action, that AIG's lawyers will likely make a lot of contrary noises, and that those noises will be heeded.
My guess, furthermore, is that some young eager-beaver in the attorney general's office got ahead of himself.
Tuesday, February 26, 2008
AIG Guilty Verdict
A jury in Hartford, Conn. has found one of AIG's executives guilty in a scheme to manipulate that company's financial statements.
The man at the defense table was Christian Milton, formerly AIG's vice president of re-insurance. He was convicted along with four executives from the General Re Corp., whom I won't name here because my own interest is in the AIG side of the case.
Milton remains free on bond pending a sentencing hearing in May. His attorney, Frederick Hafetz, said he'll appeal. No doubt one of his contentions on appeal will be precisely that Milton shouldn't have been lumped in with the General Re crowd. Interestingly, each of the General Re defendants was higher-ranking in their organization than Milton was in his.
The other reason to focus on Milton rather than the General Re defendants is that the scheme is supposed to have been for his company's benefit, not theirs. The General Re folks were supposedly just trying to accomodate AIG, given its importance in the industry. The government charged that General Re agreed to assist AIG in accounting shenanigans that inflated its (AIG's) loss reserves figure. That, in turn, presumably calmed the nerves of investors and helped sustain AIG's stock price.
So why only a lowly vice-president in the dock from AIG? The prosecutor said he hopes to work "up the ladder," and presumably at the top of that ladder is the fellow who was CEO at the time, Hank Greenberg.
Getting up those rungs is by no means a foregone conclusion. Assuming just for the purpose of discussion (a) that Milton is guilty as charged, and (b) that he was committig crimes because his superiors told him to ... the inference would have to be that he has NOT ratted out those superiors yet, and that its unlikely the prosecution has more to offer him now in return for co-operation than whatever they were offering him in the pre-trial and pre-verdict negotiations.
Still, the whole thing might have a chilling effect on Greenberg's desire (one he tentatively expressed in November) to start playing an active role again at his old company.
The man at the defense table was Christian Milton, formerly AIG's vice president of re-insurance. He was convicted along with four executives from the General Re Corp., whom I won't name here because my own interest is in the AIG side of the case.
Milton remains free on bond pending a sentencing hearing in May. His attorney, Frederick Hafetz, said he'll appeal. No doubt one of his contentions on appeal will be precisely that Milton shouldn't have been lumped in with the General Re crowd. Interestingly, each of the General Re defendants was higher-ranking in their organization than Milton was in his.
The other reason to focus on Milton rather than the General Re defendants is that the scheme is supposed to have been for his company's benefit, not theirs. The General Re folks were supposedly just trying to accomodate AIG, given its importance in the industry. The government charged that General Re agreed to assist AIG in accounting shenanigans that inflated its (AIG's) loss reserves figure. That, in turn, presumably calmed the nerves of investors and helped sustain AIG's stock price.
So why only a lowly vice-president in the dock from AIG? The prosecutor said he hopes to work "up the ladder," and presumably at the top of that ladder is the fellow who was CEO at the time, Hank Greenberg.
Getting up those rungs is by no means a foregone conclusion. Assuming just for the purpose of discussion (a) that Milton is guilty as charged, and (b) that he was committig crimes because his superiors told him to ... the inference would have to be that he has NOT ratted out those superiors yet, and that its unlikely the prosecution has more to offer him now in return for co-operation than whatever they were offering him in the pre-trial and pre-verdict negotiations.
Still, the whole thing might have a chilling effect on Greenberg's desire (one he tentatively expressed in November) to start playing an active role again at his old company.
Tuesday, December 25, 2007
The class action against AIG
The usual drill in a class-action securities fraud lawsuit is to create a "class period," defined by two dates. Date A is that day on which the company should have disclosed some specific important piece of information. Date B is that day on which the public became aware of it anyway.
The class, then, consists of all persons who bought the defendant company stock between A and B. It is worth noting that just holding stock during that period doesn't make one a member of the class so defined. Nor does selling stock then have any relevance. The class consists of buyers within the class period.
The reason? only a buyer can claim to have been over-charged. The buyers are complaining that between A and B, the market price was higher than it would have been had the market in general been aware of the realities.
The filing against AIG last year fit this pattern. The class period begins in October 1999, on the basuis of a press release put out that month that described consolidated assets as $259 billion and shareholders' equity as $32.3 billion. The class period continues until October 2004, when the CBS MarketWatch issued an article headlined "Spitzer attacks insurance industry," which disclosed to the public (as the plaintiffs see it) that the kind of claims re: assets and equity the company had been claiming for fivce years were based on the manipulation of the financial statements.
The law firm that represents AIG is Paul Weiss Rifkand. It has argued that the plaintiff doesn't have a case for "scienter," or in layfolk term that they were knowingly committing fraud. They can't be held responsible for the fact that a New York State A-G would eventually get a bee in his bonnet about certain practices, after all. Did they understand that the accounting procedures and re-insurance deals at issue would result in pumping up the price of their stock?
That's enough work for me on a Christmas Day. Enjoy the holiday, all.
The class, then, consists of all persons who bought the defendant company stock between A and B. It is worth noting that just holding stock during that period doesn't make one a member of the class so defined. Nor does selling stock then have any relevance. The class consists of buyers within the class period.
The reason? only a buyer can claim to have been over-charged. The buyers are complaining that between A and B, the market price was higher than it would have been had the market in general been aware of the realities.
The filing against AIG last year fit this pattern. The class period begins in October 1999, on the basuis of a press release put out that month that described consolidated assets as $259 billion and shareholders' equity as $32.3 billion. The class period continues until October 2004, when the CBS MarketWatch issued an article headlined "Spitzer attacks insurance industry," which disclosed to the public (as the plaintiffs see it) that the kind of claims re: assets and equity the company had been claiming for fivce years were based on the manipulation of the financial statements.
The law firm that represents AIG is Paul Weiss Rifkand. It has argued that the plaintiff doesn't have a case for "scienter," or in layfolk term that they were knowingly committing fraud. They can't be held responsible for the fact that a New York State A-G would eventually get a bee in his bonnet about certain practices, after all. Did they understand that the accounting procedures and re-insurance deals at issue would result in pumping up the price of their stock?
That's enough work for me on a Christmas Day. Enjoy the holiday, all.
Monday, December 24, 2007
PACER and AIG
I used the acronym PACER in yesterday's blog entry but neglected to explain myself.
Here goes, then. PACER stands for "Public Access to Court Electronic Records," and it provides exactly that (for a modest fee) for anyone with internet access.
For a reporter nowadays it's a wonderful time saver in contrast to the old days when you'd have to cajole a court clerk into faxing you the files. Alas! not every state court system has caught up with the digital era. Some of the states have their analogs to the federal PACER, but they vary wildly in ease of access and use.
PACER itself, though, is marvellous. Thanks to it, I just typed in "Ohio Public Employees Retirement System" for the district court, southern district of New York and found the four cases there in which OPERS is a party, Two of them seem relevant (judging from the name alone) to the matter I was discussing in yesterday's entry -- OPERS v. Greenberg et al., and In Re AIG Securities Litigation.
The "In re" case is, as such titles generally indicate, a consolidationof several distinct filings. The "OPERS v. Greenberg" lawsuit claimed that in order to get out from under that action, in which he was a co-defendant, Greenberg made a "fraudulent conveyance" of his stock to his wife without compensation, and OPERS (filing in May 2005) asked the court to set aside this conveyance.
The "fraudulent conveyance" case was dismissed by agreement of the parties three months later. The big "In re: AIG" action is still open. I'll wait to open that file, though, until Christmas day.
Here goes, then. PACER stands for "Public Access to Court Electronic Records," and it provides exactly that (for a modest fee) for anyone with internet access.
For a reporter nowadays it's a wonderful time saver in contrast to the old days when you'd have to cajole a court clerk into faxing you the files. Alas! not every state court system has caught up with the digital era. Some of the states have their analogs to the federal PACER, but they vary wildly in ease of access and use.
PACER itself, though, is marvellous. Thanks to it, I just typed in "Ohio Public Employees Retirement System" for the district court, southern district of New York and found the four cases there in which OPERS is a party, Two of them seem relevant (judging from the name alone) to the matter I was discussing in yesterday's entry -- OPERS v. Greenberg et al., and In Re AIG Securities Litigation.
The "In re" case is, as such titles generally indicate, a consolidationof several distinct filings. The "OPERS v. Greenberg" lawsuit claimed that in order to get out from under that action, in which he was a co-defendant, Greenberg made a "fraudulent conveyance" of his stock to his wife without compensation, and OPERS (filing in May 2005) asked the court to set aside this conveyance.
The "fraudulent conveyance" case was dismissed by agreement of the parties three months later. The big "In re: AIG" action is still open. I'll wait to open that file, though, until Christmas day.
Sunday, December 23, 2007
Labaton Sucharow LLP
A Merry Christmas to the lawyers of Labaton Sucharow and their staff.
I mentioned in an entry on Veterans' Day that somebody at Labaton, a prominent securities-litigation law firm, had googled the name "Hank Greenberg" and ended up at this blog as a result.
Labaton, a New York based firm, represents 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'd like to extend an invitation to anyone from Labaton to comment on this blog about the nature of that lawsuit.
A couple of questions come to mind. First, are the managers of public employees retirement systems supposed to be very sophisticated folk, knowledgeable in the ways of the investment world? If they lost some money on AIG ... so what? my guess is the portfolio was diversified, and nobody has missed any pension payments as a consequence of a dip in the value of this particular stock, have they?
Shouldn't there be anything of "caveat emptor" in our reactions to such situations?
Of course, in the case of blatant corruption there should be some recourse. If somebody on AIG's payroll had bought a really nice beachside condo on the Gulf Coast of Florida for somebody in the relevant Ohio bureaucracy, and the day after that sale closed the pension plan suddenly put a lot of $ into AIG stock ... okay, I can see how the people of the fine state of Ohio would be ticked off at that.
But so far as I can tell, there's been no such allegation. In fact, since I'm too lazy to go to PACER right now to look it up, let's count that as my second question. Am I right that there's been no charge of that sort of corruption at AIG?
So: in your own words Labaton ... what gives?
I mentioned in an entry on Veterans' Day that somebody at Labaton, a prominent securities-litigation law firm, had googled the name "Hank Greenberg" and ended up at this blog as a result.
Labaton, a New York based firm, represents 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'd like to extend an invitation to anyone from Labaton to comment on this blog about the nature of that lawsuit.
A couple of questions come to mind. First, are the managers of public employees retirement systems supposed to be very sophisticated folk, knowledgeable in the ways of the investment world? If they lost some money on AIG ... so what? my guess is the portfolio was diversified, and nobody has missed any pension payments as a consequence of a dip in the value of this particular stock, have they?
Shouldn't there be anything of "caveat emptor" in our reactions to such situations?
Of course, in the case of blatant corruption there should be some recourse. If somebody on AIG's payroll had bought a really nice beachside condo on the Gulf Coast of Florida for somebody in the relevant Ohio bureaucracy, and the day after that sale closed the pension plan suddenly put a lot of $ into AIG stock ... okay, I can see how the people of the fine state of Ohio would be ticked off at that.
But so far as I can tell, there's been no such allegation. In fact, since I'm too lazy to go to PACER right now to look it up, let's count that as my second question. Am I right that there's been no charge of that sort of corruption at AIG?
So: in your own words Labaton ... what gives?
Monday, December 17, 2007
Controlling Group
I over-promised yesterday, when I said I'd discuss the legal issue today of whether Greenberg is running a "controlling group" in the meaning of New York's law governing who does or doesn't get to control an insurance company.
Researching the matter turns out to be more trouble than I thought, and would expect that words like "control" and "group" have the same meaning in New York state law, in particular in its insurance law, that they have in the federal securities regulatory system.
But maybe not. The point, after all, is different. In federal securities law, the question often arises, "is so-and-so seeking to acquire control of a company without paying a control premium for it?" That is, after all, how the temptation to buy shares through surrogates, acting informally as a 'group,' would arise. An acquirer given its druthers wouldn't announce on the news "I'm going to start buying up AIG shares until I control the company"! That would be akin to saying, "Please demand ever-higher prices from me for that stock -- I'll pay them," and this of course gets to be expensive. Hence the phrase "control premium."
But the acquirers don't get their druthers. If you act surreptitiously, as a 'group,' to acquire the stock without paying such a premium you're in violation of the securities laws and regulations which require candor on such matters, on the theory that its only fair to pay the stockholders that sort of control premium, and you've cheated them out of something if you avoid paying it.
There's more to it than that, but my point is just that the significance of words "control" and "group" in the typical securities litigators' setting is different from the concern of the insurance regulators of a state to keep track of just who it is they are regulating. The meaning of the words may not be the same.
And of course you must suppress any impulse that arises in your throat to say, "maybe group just means plain-old-English 'group'." Tautologies don't enlighten.
Researching the matter turns out to be more trouble than I thought, and would expect that words like "control" and "group" have the same meaning in New York state law, in particular in its insurance law, that they have in the federal securities regulatory system.
But maybe not. The point, after all, is different. In federal securities law, the question often arises, "is so-and-so seeking to acquire control of a company without paying a control premium for it?" That is, after all, how the temptation to buy shares through surrogates, acting informally as a 'group,' would arise. An acquirer given its druthers wouldn't announce on the news "I'm going to start buying up AIG shares until I control the company"! That would be akin to saying, "Please demand ever-higher prices from me for that stock -- I'll pay them," and this of course gets to be expensive. Hence the phrase "control premium."
But the acquirers don't get their druthers. If you act surreptitiously, as a 'group,' to acquire the stock without paying such a premium you're in violation of the securities laws and regulations which require candor on such matters, on the theory that its only fair to pay the stockholders that sort of control premium, and you've cheated them out of something if you avoid paying it.
There's more to it than that, but my point is just that the significance of words "control" and "group" in the typical securities litigators' setting is different from the concern of the insurance regulators of a state to keep track of just who it is they are regulating. The meaning of the words may not be the same.
And of course you must suppress any impulse that arises in your throat to say, "maybe group just means plain-old-English 'group'." Tautologies don't enlighten.
Sunday, December 16, 2007
AIG and New York
New York State's insurance department has taken a position that may frustrate Hank Greenberg's efforts to ... do whatever it is he's planning to do, in connection with AIG, the global insurance giant he headed for years.
Perhaps the reader will recall my discussions from Nov. 4 through Nov. 7. I didn't know then, and still don't know, whether Greenberg seeks outright control of AIG, or whether he'll be satisfied engineering some profitable change in its corporate structure and policy. But something is up.
The New York Insurance Dept. filed a letter December 7 stating its position, which is that too much is up.
New York law says that if individual stockholder or group acting together acquires more than 10% of the equity of a company selling insurance within that state, the acquirer becomes a "controlling entity" -- which requires permission.
New York now calculates that entities Greenberg is piloting control more than the threshold amount of AIG, and must either seek permission to be a controlling entity or "cease and desist immediately from engaging in any further activities aimed at exercising a controlling influence over AIG."
An attorney for Greenberg, Marcia Alazraki, has replied, saying that the various entities involved aren't a group in the relevant sense, and asking for a meeting with NY officials to discuss the issue.
Ms Alazraki knows the issue well. She was deputy superintendent at the NY Dept. of Insurance herself in the early 1980s, and assistant counsel to the Governor of the state, Hugh Carey, before that (1979-81).
She's also got a fine, somewhat intimidating, photograph on her webpage. One likes that in a lawyer.
http://www.manatt.com/Attorneys.aspx?id=1247&item=1245
Tomorrow, then, let's examine the issue of when does a group of shareholders act in concert for purposes of sucg regulatory concerns.
Perhaps the reader will recall my discussions from Nov. 4 through Nov. 7. I didn't know then, and still don't know, whether Greenberg seeks outright control of AIG, or whether he'll be satisfied engineering some profitable change in its corporate structure and policy. But something is up.
The New York Insurance Dept. filed a letter December 7 stating its position, which is that too much is up.
New York law says that if individual stockholder or group acting together acquires more than 10% of the equity of a company selling insurance within that state, the acquirer becomes a "controlling entity" -- which requires permission.
New York now calculates that entities Greenberg is piloting control more than the threshold amount of AIG, and must either seek permission to be a controlling entity or "cease and desist immediately from engaging in any further activities aimed at exercising a controlling influence over AIG."
An attorney for Greenberg, Marcia Alazraki, has replied, saying that the various entities involved aren't a group in the relevant sense, and asking for a meeting with NY officials to discuss the issue.
Ms Alazraki knows the issue well. She was deputy superintendent at the NY Dept. of Insurance herself in the early 1980s, and assistant counsel to the Governor of the state, Hugh Carey, before that (1979-81).
She's also got a fine, somewhat intimidating, photograph on her webpage. One likes that in a lawyer.
http://www.manatt.com/Attorneys.aspx?id=1247&item=1245
Tomorrow, then, let's examine the issue of when does a group of shareholders act in concert for purposes of sucg regulatory concerns.
Sunday, November 11, 2007
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.
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.
Wednesday, November 7, 2007
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.)
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.)
Tuesday, November 6, 2007
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.
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.
Monday, November 5, 2007
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.
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.
Sunday, November 4, 2007
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.
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.
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