Teachers group settles AIG suit

• By CHRIS GAUTREAU
• Advocate business writer
• Published: Sep 12, 2008 - Page: 1D - UPDATED: 12:05 a.m.

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Teachers Retirement System of Louisiana settled a 6-year-old shareholder lawsuit against former executives of insurance giant AIG on Wednesday for $115 million.

Opening arguments in the trial were slated to begin next week.

In its suit filed with the Chancery Court in Delaware, where AIG is incorporated, the retirement system accused Maurice Greenberg, the former AIG chairman and chief executive, and three other former executives of siphoning money from the company by steering business to a separate, private company all four controlled.

Alan Ripp, an attorney with the Grant & Eisenhofer law firm in New York hired by the retirement system, said terms of the settlement call for $29.5 million to come directly from Greenberg and the other defendants: former Chief Financial Officer Howard Smith; former Vice Chairman of Investments Edward Matthews; and former Vice Chairman of Insurance Thomas Tizzio.

Ripp said the remaining $85.5 million will be paid by AIG’s directors and officers liability insurance, which covers damages or legal costs when company executives are sued for wrongdoing.

“That means AIG is not paying itself to pay itself,” Ripp said in a telephone interview.

He also said the entire $115 million will be returned to AIG.  The retirement system filed the suit in a dispute over corporate governance, he said. The retirement system benefits as a shareholder, but it won’t receive any of the settlement directly.

The retirement system claims to be the state’s largest public retirement system, with $16.1 billion in assets and more than 160,000 members.

Greenberg quit AIG as state and federal investigators probed the company’s $3.4-billion restatement of profits for a five-year period beginning in 2000. AIG agreed to pay more than $1.6 billion to settle claims filed by the New York Attorney General’s Office and the Securities and Exchange Commission that the company misled investors.

Greenburg and his three fellow defendants are also executives of C.V. Starr & Co., a privately held AIG affiliate they controlled.

C.V. Starr, which Greenburg still directs, is AIG’s largest shareholder.

In its suit, the retirement system claimed the men directed insurance business worth hundreds of millions of dollars in commissions to C.V. Starr, even though AIG could have garnered the business itself.

Ripp said that during pretrial discovery, it also was revealed that C.V. Starr used AIG employees and resources to perform work that generated commission payments from AIG.