AIG Ex-Chief Gave Stock to Wife Days Before Quitting
From Associated Press, LA Times, April 13, 2005

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Three days before he resigned as head of American International Group Inc., Maurice "Hank" Greenberg gave his wife 41.4 million of his shares in the insurance company, according to a regulatory filing Tuesday.

The disclosure came the same day Greenberg declined to answer questions posed by government investigators probing transactions at AIG.

AIG's board forced Greenberg, 79, to relinquish his posts as president and CEO on March 14, and he retired as the company's chairman two weeks later. Greenberg transferred the shares to his wife, Corinne P. Greenberg, on March 11, according to his filing Tuesday with the Securities and Exchange Commission. The shares are valued at $2.2 billion, based on AIG's current stock price.

Greenberg directly held 1.95 million shares after the transfer, not counting additional shares he still held through Starr International, a company that sets AIG managers' salaries and which holds AIG shares.

Howard Opinsky, a spokesman for Greenberg's legal team, declined to comment on the filing, as did an AIG spokesman.

At Tuesday's deposition, Greenberg invoked his Fifth Amendment rights against self-incrimination in response to all questions during the 45-minute session, according to a person who attended the meeting but asked not to be identified.

There was no public statement from Greenberg.

Investigators who attended the session with Greenberg in New York Atty. Gen. Eliot Spitzer's office in Manhattan included members of Spitzer's staff, representatives from the Securities and Exchange Commission and lawyers from the New York state Insurance Department.

The investigators are looking into a number of transactions involving reinsurance, which is insurance that insurers buy to reduce their risk.

Also Tuesday, leaders of the nation's largest public retirement systems said they would ask for full board approval to sue AIG, seeking recovery of $400 million in stock losses.

California Treasurer Phil Angelides, a board member of the $182.9-billion California Public Employees' Retirement System and $125-billion California State Teachers' Retirement System, cited "grievous damage" to holdings of more than 2 million California retirees and employees from misconduct at AIG.

"The losses are beyond the realm of excessive," CalPERS President Rob Feckner said. He will ask the full CalPERS board next week to begin legal action against AIG, its executives and auditors.

An AIG spokesman declined to comment.

California's pension funds hold more than $1 billion of AIG stock - 20.9 million shares. The company's stock has dropped by more than $19 a share since the start of federal and state investigations into its finances.

Shares of AIG rose $1.10 to $53.20 on the New York Stock Exchange.

Maurice R. Greenberg Resigns From American International Group in Disgrace and Faces Court Proceedings

Name: Maurice R. Greenberg
Occupation: CEO & Chair, American International Group
Industry: Insurance
Home: New York, New York
1999 Salary & Perks: $27 Million

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2000:
Like Pioneer Heinz Prechter, President Bush took big-donor insurance magnate Maurice "Hank" Greenberg along with him on his '92 trade mission to Asia. As a result of this "access," AIG got to sell more insurance in Japan and became the first foreign company allowed to sell insurance in China. Besides being a huge political funder, Greenberg is a major underwriter of the Heritage Foundation think tank (see Pioneer Elaine Chao). Imagine his horror to discover a Heritage thinker urging Congress to postpone its 2000 vote on normalizing trade with Greenberg's beloved China. After Greenberg threatened to cut off funding, the think tank rethunk its position and issued a new report: "How Trade With China Benefits Americans." AIG scored a revolving-door coup in '98 when it hired Ernest Patrikis, an official departing the powerful Federal Reserve Bank of New York, as a "special adviser" to Greenberg. An AIG subsidiary, AIG Capital Partners Inc., paid a $500,000 "finder's fee" to Pioneer Wayne Berman, who helped the company land a contract to manage $100 million in state pension investments from ex-Connecticut Treasurer Paul Silvester. Silvester was convicted in '99 of taking kickbacks from the private money managers to whom he awarded investment contracts. AIG paid Greenberg more than $6 million in '98 alone. Pioneer Robert J. O'Connell also was an AIG executive until recently.

Sound Business Ethics Give Companies Investment Value

15 Specialists From Big Board Are Indicted
By JENNY ANDERSON, NY TIMES, April 13, 2005

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Federal prosecutors announced the indictment yesterday of 15 former New York Stock Exchange floor traders, who are charged with cheating customers by mishandling trades to enrich their firms.

The Securities and Exchange Commission also filed securities fraud complaints against the 15 and against 5 other traders, saying they had made thousands of illicit trades from 1999 through 2003. The 20 were specialists - traders on the floor of the exchange who manage activity in particular stocks. The Big Board also settled S.E.C. accusations that it failed to regulate its traders properly.

The joint enforcement action is another black eye for the New York Stock Exchange, which has had scandals in recent years, and comes at a pivotal moment in the exchange's evolution. While the S.E.C. recently endorsed its floor-based system as part of an overhaul of how stocks are traded in the United States, the Big Board was still forced to make some radical changes. A hybrid system allows more electronic trading while maintaining the core floor-based operations.

But a backbone of the New York Stock Exchange is the specialist, a trader who has the obligation to create an orderly market in the stocks he or she supervises.

Critics of the system, often proponents of purely electronic markets, say the human element slows the process, creates conflicts of interest - all the traders buy and sell for their company's account as well as for customer accounts - and is unnecessary, given the technology that is available.

Defenders of the exchange say that because of the large volume of stock that is traded there, it offers better prices with fewer fluctuations while providing the opportunity for human judgment when such judgment is needed. About 1.6 billion shares a day, worth $56 billion, are currently traded on the Big Board.

At its heart, the case again raises the question of whether self-regulatory organizations like the New York Stock Exchange can successfully police themselves. Yesterday's indictments represented the second big floor-trading scandal in recent years. In 1999, the S.E.C. found that the Big Board failed to uncover and halt illegal proprietary trading by a ring of independent floor brokers.

While the Big Board uncovered the original instances of improper trading in this latest case, it failed to follow through, leading to S.E.C. supervision of the investigation. Last year, the S.E.C. brought enforcement actions against seven specialist firms. The firms paid more than $243 million without admitting wrongdoing. The S.E.C. is considering whether to change the self-regulatory model.

Federal regulators say the specialists engaged in two illegal trading schemes: using knowledge of a trade to deal in front of it, and "interpositioning," which occurs when a specialist intervenes in a trade rather than matching buy and sell orders.

The 15 specialists indicted, all but two of whom have left their firms, were members of the New York Stock Exchange's five major specialist trading companies. They are accused of making illegal trading profits from interpositioning of $13.4 million and costing investors more than $19 million from trading for their firms' accounts ahead of customers.

In some instances where, prosecutors said, the traders were cheating customers, they referred to the exchange's electronic order system with an obscenity. Mark Schonfeld, director of the S.E.C.'s Northeast Region office, said the specialists' disregard for their obligations was "profound, and at times profane."

In one case, at 9:41 a.m. on Oct. 2, 2002, the computer of a specialist in General Electric stock indicated that at a price of $25.85, there were orders to buy 39,500 shares and orders to sell 35,000 shares. The specialist, David A. Finnerty of Fleet Specialist, should have matched the 35,000, prosecutors say. Instead he bought 22,700 shares for Fleet's own account at $25.85, then raised the price to $25.95. Just after 9:42, he sold 12,800 shares from the same account, making $1,280 in about 14 seconds.

Regulators say he made $4.3 million in illegal profit and caused $5 million in customer harm.

But Mr. Finnerty's lawyer, Frederick P. Hafetz, said of his client: "His conduct was consistent with his obligations to the New York Stock Exchange. He is fully confident that he will be vindicated at trial."

David N. Kelley, the United States attorney in Manhattan, said at a news conference that the specialists put "their own interests and the interests of their firms before the interests of the unwitting investors."

"Over time," Mr. Kelley continued, "these small thefts accumulate into large profits that translate into higher compensation and bonuses for specialists who execute the trades." He added that the investigation was continuing and that other indictments could follow.

If convicted, the accused face prison terms as long as 10 to 20 years and fines of $1 million to $5 million, or twice the gross gain or loss resulting from the improper trades, prosecutors said.

Fourteen traders who were indicted have been arrested (the 15th is thought to be in the Netherlands.) All 14 pleaded not guilty late yesterday.

As part of its settlement with the S.E.C., the stock exchange agreed to finance an outside monitor to conduct audits of its regulatory program every two years through 2011. In addition, it will set up a pilot program of video and audio surveillance on its trading floor for at least 18 months in a group of 20 highly liquid stocks.

The Big Board had instituted a number of measures to curb abuse. In December 2003, it created a chief regulatory officer and formally separated its regulatory arm from the business side. Regulatory management has been almost entirely replaced, and the size of the group has increased markedly. A specialist surveillance unit and a risk assessment unit have been created.

The 15 people indicted yesterday include, in addition to Mr. Finnerty, Donald R. Foley II, Scott G. Hunt and Thomas J. Murphy Jr., all former employees of Fleet Specialist, now part of Bank of America; Frank A. Delaney IV and Kevin M. Fee, former specialists at Bear Wagner; Freddy DeBoer, a former Labranche & Company specialist; Robert A. Johnson, of Spear, Leeds Kellogg Specialists; and Patrick J. McGagh, Joseph Bongiorno, Michael J. Hayward, Richard P. Volpe, Michael F. Stern, Gerard T. Hayes and Robert A. Scavone, of Van der Moolen Specialists USA.

At the arraignment yesterday, Barry H. Berke, who represents Mr. Bongiorno, called the charges "an unprecedented attempt to transform industrywide issues into a criminal case" against individuals.

The S.E.C.'s case names five other specialists. They include two former Spear Leeds chiefs, Todd Christie and Robert Lucklow. Neither continues to work at Goldman Sachs, which acquired Spear, Leeds in 2000. James Parolisi and Patrick E. Murphy also worked at Spear Leeds.

"Patrick Murphy has long enjoyed a sterling reputation for his skill and his integrity as a specialist at the N.Y.S.E.," Mr. Murphy's lawyer, Robert F. Katzberg, said.

The fifth trader is Warren Turk, who worked at Van der Moolen.

Lawrence Iason, Mr. Turk's lawyer, said, "My client testified before the S.E.C., and in doing so explained he has done nothing wrong and intends to contest the charges."

Robert J Giuffra Jr., a lawyer for Van der Moolen, said, "Van der Moolen specialists continue to cooperate with all government investigations, and the N.Y.S.E. and has taken remedial steps to put these past matters behind the firm."

Representatives of the other firms declined to comment.

In calls to homes of 12 of the 15 former executives, either the executives refused to comment or the calls were not returned. Thomas Murphy, Mr. DeBoer and Mr. Volpe could not be reached.

Eric Dash and Colin Moynihan contributed reporting for this article.