Former longtime AIG chief Maurice ''Hank'' Greenberg and another former executive will get $60 million from the company's insurers to cover legal and other costs as part of a proposed settlement of investor lawsuits, court papers show.
The payouts to Greenberg and former Chief Financial Officer Howard Smith are in addition to $90 million that American International Group Inc.'s insurers, as previously reported, will pay directly to the company as part of the proposed settlement.
The $150 million of payouts were revealed in an Aug. 25 agreement filed in Delaware Chancery Court, and obtained Friday by Reuters.
They stem from litigation in which investors accused more than 20 onetime AIG executives and directors of poor oversight and allowing improper bonuses. The Delaware lawsuit was filed by investors on behalf of AIG.
Greenberg left AIG in March 2005 after nearly four decades at the helm.
AIG in November 2009 said it had resolved all litigation with Greenberg, and agreed to reimburse him and Smith for as much as $150 million of legal fees and expenses, according to an agreement filed with U.S. regulators.
The $60 million payout by insurers is separate from that agreement, and Greenberg and Smith represented in the earlier agreement that no one else other than the insurers was obligated to indemnify them for the relevant costs.
AIG had $200 million of insurance for directors and officers, the Delaware agreement shows. None of the sums being paid go to investors, and Greenberg and Smith are also not responsible to pay out money in connection with the agreement.
In emailed statements, AIG said it was pleased the matter has been resolved, as did Lee Wolosky, a partner at Boies, Schiller & Flexner LLP who represents Greenberg.
A lawyer who signed the Aug. 25 agreement on behalf of Smith did not immediately return a call seeking comment.
The Delaware agreement requires approval of Vice Chancellor Leo Strine of the Delaware court. A settlement will be made final upon the dismissal of similar litigation in Manhattan federal court, the agreement shows.
Based in New York, AIG in September 2008 narrowly averted collapse after becoming overexposed to risky debt. It accepted a federal bailout that grew to $182.3 billion and left taxpayers owning a nearly 80 percent stake.
Six weeks ago, AIG agreed to pay $725 million to settle a shareholder class-action lawsuit led by Ohio Attorney General Richard Cordray, who accused it of accounting fraud and trying to manipulate its stock price.
AIG still faces shareholder class-action litigation in Manhattan federal court. Greenberg has sought to dismiss a civil fraud lawsuit by New York Attorney General Andrew Cuomo over a sham reinsurance transaction.
The case is In re: American International Group Inc Derivative Litigation, Delaware Chancery Court, No. CA 769.
Monday, August 30, 2010
Stanford Execs Deny Key Role in Alleged Fraud Cited by Lloyd's
Lawyers for Texas financier Allen Stanford and two accounting executives who worked for him sought to distance their clients Friday from the alleged financial wrongdoing insurer Lloyd's of London cites as a reason to void a policy covering their defense fees.
"Mr. Stanford was not really a hands-on guy,'' Robert Bennett, Stanford's attorney, said during closing arguments after four days of hearings in federal court. "Mr. Stanford was not at the center of anything illegal or wrong.''
The nondisclosure of a nearly $2 billion unsecured loan to Stanford, misrepresentations to investors and phony accounting are all grounds to stop paying claims under a directors and officers policy, the British insurer said.
Stanford, accounting executives Mark Kuhrt and Gilbert Lopez and Chief Investment Officer Laura Holt have sued Lloyd's of London over payment of the fees. But that policy has a money laundering exclusion, so Lloyd's must prove to U.S. District Judge Nancy Atlas in Houston that the plaintiffs committed that act.
Holt struck a deal with the insurer before the start of the hearings last Tuesday. She and the three other plaintiffs in this case are accused of participating in an alleged $7 billion Ponzi scheme centered around fraudulent certificates of deposit (CDs) issued by Stanford's offshore bank in Antigua.
"It is clear that the money collected for the CDs was criminal property as defined by the policy,'' said Barry Chasnoff, an attorney for Lloyd's. "There was no evidence offered to the contrary.''
BLAME DAVIS
Lawyers for Stanford and the accounting executives have placed a lot of the blame on James Davis, the former chief financial officer of Stanford International Bank Ltd. (SIB) who pleaded guilty last August to three felony counts related to the scheme.
Davis had the final sign-off on numerous financial documents from SIB, the institution the government claims is at the center of the alleged scheme, lawyers and witnesses said.
"I believe that Mr. Kuhrt and Mr. Lopez were middle-level accounting managers and it was Mr. Davis' responsibility to deal with the auditors on these issues,'' Alan Westheimer, an accountant hired by Kuhrt and Lopez as an expert witness, testified.
Stanford also relied on Davis -- his former No. 2 man at the company and former classmate from Baylor University -- as well as on the professional advice of accountants and lawyers, Bennett told the hearing.
Still, Atlas told the hearing it was clear to her that Lopez and Kuhrt "were close to the top,'' and were close to Davis.
She said she had a suspicion that Lloyd's would not be fronting legal fees to the men after the hearings.
Lloyd's has advanced as much at $6 million to pay for Stanford's attorneys, many of whom have left the case or been fired by their client.
Stanford, who is 60 and is in jail awaiting a January trial, faces one count of conspiracy to commit money laundering as part of a 21-count June 2009 indictment.
The hearings were seen as a preview of Stanford's criminal case. Many people involved in the case, including Stanford and Lopez, invoked their Fifth Amendment right and did not testify, so much evidence centered on documents that are part of the government's civil and criminal case.
The case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Co, U.S. District Court, Southern District of Texas, No. 09-3712.
"Mr. Stanford was not really a hands-on guy,'' Robert Bennett, Stanford's attorney, said during closing arguments after four days of hearings in federal court. "Mr. Stanford was not at the center of anything illegal or wrong.''
The nondisclosure of a nearly $2 billion unsecured loan to Stanford, misrepresentations to investors and phony accounting are all grounds to stop paying claims under a directors and officers policy, the British insurer said.
Stanford, accounting executives Mark Kuhrt and Gilbert Lopez and Chief Investment Officer Laura Holt have sued Lloyd's of London over payment of the fees. But that policy has a money laundering exclusion, so Lloyd's must prove to U.S. District Judge Nancy Atlas in Houston that the plaintiffs committed that act.
Holt struck a deal with the insurer before the start of the hearings last Tuesday. She and the three other plaintiffs in this case are accused of participating in an alleged $7 billion Ponzi scheme centered around fraudulent certificates of deposit (CDs) issued by Stanford's offshore bank in Antigua.
"It is clear that the money collected for the CDs was criminal property as defined by the policy,'' said Barry Chasnoff, an attorney for Lloyd's. "There was no evidence offered to the contrary.''
BLAME DAVIS
Lawyers for Stanford and the accounting executives have placed a lot of the blame on James Davis, the former chief financial officer of Stanford International Bank Ltd. (SIB) who pleaded guilty last August to three felony counts related to the scheme.
Davis had the final sign-off on numerous financial documents from SIB, the institution the government claims is at the center of the alleged scheme, lawyers and witnesses said.
"I believe that Mr. Kuhrt and Mr. Lopez were middle-level accounting managers and it was Mr. Davis' responsibility to deal with the auditors on these issues,'' Alan Westheimer, an accountant hired by Kuhrt and Lopez as an expert witness, testified.
Stanford also relied on Davis -- his former No. 2 man at the company and former classmate from Baylor University -- as well as on the professional advice of accountants and lawyers, Bennett told the hearing.
Still, Atlas told the hearing it was clear to her that Lopez and Kuhrt "were close to the top,'' and were close to Davis.
She said she had a suspicion that Lloyd's would not be fronting legal fees to the men after the hearings.
Lloyd's has advanced as much at $6 million to pay for Stanford's attorneys, many of whom have left the case or been fired by their client.
Stanford, who is 60 and is in jail awaiting a January trial, faces one count of conspiracy to commit money laundering as part of a 21-count June 2009 indictment.
The hearings were seen as a preview of Stanford's criminal case. Many people involved in the case, including Stanford and Lopez, invoked their Fifth Amendment right and did not testify, so much evidence centered on documents that are part of the government's civil and criminal case.
The case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Co, U.S. District Court, Southern District of Texas, No. 09-3712.
Earl Now Major Hurricane, Headed Toward East Coast
Hurricane Earl has strengthened into a major Category 3 storm Monday and could arrive off the East Coast of the U.S. by the end of this week.
It is currently rocking the Caribbean's Northern Leeward Islands.
The National Hurricane Center said Earl is now the second major hurricane of the 2010 Atlantic season, with winds up to 120 miles per hour .
Hurricane warnings are in effect for Antigua, Barbuda, Montserrat, St. Kitts & Nevis, Anguilla, St. Martin and St. Barthelemy, St. Maarten, Saba and St. Eustatius, the British and the U.S. Virgin islands.
A hurricane watch is also in effect for Puerto Rico.
Hurricane Danielle has moved into the North Atlantic and is now more of a threat to Iceland than the U.S.
It is currently rocking the Caribbean's Northern Leeward Islands.
The National Hurricane Center said Earl is now the second major hurricane of the 2010 Atlantic season, with winds up to 120 miles per hour .
Hurricane warnings are in effect for Antigua, Barbuda, Montserrat, St. Kitts & Nevis, Anguilla, St. Martin and St. Barthelemy, St. Maarten, Saba and St. Eustatius, the British and the U.S. Virgin islands.
A hurricane watch is also in effect for Puerto Rico.
Hurricane Danielle has moved into the North Atlantic and is now more of a threat to Iceland than the U.S.
Monday, August 9, 2010
Florida Orders Halt to Sale of Warranty Products
Florida Insurance Commissioner Kevin McCarty today announced the Office of Insurance Regulation (Office) has issued an order to Auto Repair Warranty Inc. (ARW), Auto Repair Group LLC (ARG) and Michael R. Petruziello to Cease and Desist selling unauthorized motor vehicle service agreements in Florida.
Office investigators concluded that the aforementioned companies sold unauthorized and unlicensed motor vehicle service agreements through its website www.autorepairwarranty.com and through agreements sold by ARW. In addition, investigators concluded that the companies engaged in unfair methods of competition and unfair or deceptive acts.
Both companies are based in Ohio. Office records indicate ARW and ARG have never been authorized to sell warranty products in the State of Florida.
"Companies selling insurance products of any kind must adhere to Florida's stringent licensing process," said Insurance Commissioner Kevin McCarty. "Floridians should always verify the products they purchase are being offered by companies licensed in our state."
Office investigators concluded that the aforementioned companies sold unauthorized and unlicensed motor vehicle service agreements through its website www.autorepairwarranty.com and through agreements sold by ARW. In addition, investigators concluded that the companies engaged in unfair methods of competition and unfair or deceptive acts.
Both companies are based in Ohio. Office records indicate ARW and ARG have never been authorized to sell warranty products in the State of Florida.
"Companies selling insurance products of any kind must adhere to Florida's stringent licensing process," said Insurance Commissioner Kevin McCarty. "Floridians should always verify the products they purchase are being offered by companies licensed in our state."
Monday, July 26, 2010
Obama Opposes Adding Wind Coverage to Federal Flood Insurance
The Obama Administration is again opposing a move to add wind insurance to the federal flood insurance program, as has been pushed by Rep. Gene Taylor, D.-Miss.
A statement from the Office of Management and Budget says Taylor's bill, HR 1264, would unnecessarily expand the government's role into an insurance area already served by private insurers.
"Although the Administration believes in strengthening the National Flood Insurance Program (NFIP) for the benefit of policyholders and taxpayers, the central rationale for the program – the difficulty of obtaining flood insurance through either the private market or state programs – simply does not apply to windstorm insurance in most markets," the OMB said.
OMB also said that because the legislation requires that a federal wind insurance program be actuarially sound, the insurance offered through a federal program may not be any less expensive, and could be more expensive, than what is currently offered by private insurers or by states.
"As a result, expanding NFIP to cover windstorm insurance would unnecessarily duplicate available insurance products and could 'crowd out" such products where they are offered, while offering little to no savings to the American public. At a time when the NFIP is already facing serious challenges, the Administration cannot support such an expansion."
The Obama Administration has opposed the wind insurance bill in the past as have various taxpayer, environmental and insurance groups. The measure is being reconsidered this week in Congress.
A statement from the Office of Management and Budget says Taylor's bill, HR 1264, would unnecessarily expand the government's role into an insurance area already served by private insurers.
"Although the Administration believes in strengthening the National Flood Insurance Program (NFIP) for the benefit of policyholders and taxpayers, the central rationale for the program – the difficulty of obtaining flood insurance through either the private market or state programs – simply does not apply to windstorm insurance in most markets," the OMB said.
OMB also said that because the legislation requires that a federal wind insurance program be actuarially sound, the insurance offered through a federal program may not be any less expensive, and could be more expensive, than what is currently offered by private insurers or by states.
"As a result, expanding NFIP to cover windstorm insurance would unnecessarily duplicate available insurance products and could 'crowd out" such products where they are offered, while offering little to no savings to the American public. At a time when the NFIP is already facing serious challenges, the Administration cannot support such an expansion."
The Obama Administration has opposed the wind insurance bill in the past as have various taxpayer, environmental and insurance groups. The measure is being reconsidered this week in Congress.
Wednesday, July 21, 2010
Private Firm WSI Cuts U.S. Hurricane Forecast to 19 Named Storms
Private weather forecaster WSI Corp cut its forecast for named storms in the 2010 Atlantic hurricane season on Tuesday, but still sees an active season with water temperatures and wind conditions conducive to violent storms.
In its latest tropical storm update, WSI called for 19 named storms, down from 20 in its June forecast, but maintained its outlook for 11 hurricanes and 5 intense hurricanes of category three or higher.
The 2010 forecast is well above the 1950-2009 averages of 10 named storms, 6 hurricanes, and 2 intense hurricanes.
"Record warm tropical Atlantic Ocean temperatures and an enabling wind shear environment should result in a very active tropical season this year,'' said Dr. Todd Crawford, WSI's chief meteorologist.
The disappearance of the El Nino event and a decrease in vertical wind shear both point to the potential for more Atlantic storms, WSI said.
A slow start to the hurricane season led to the downward revision in named storms. A pocket of dry air in the Atlantic is likely to limit development in the near term, WSI said, while August to October is expected to be a very active period.
WSI's models also indicate that the area from the Outer Banks of North Carolina northward to Maine is twice as likely as normal to experience a hurricane this year.
"Our model suggests that the threat to the Northeast coast this season is on a par with that in Florida and the Gulf coastal states,'' WSI said.
The Atlantic hurricane season runs from June 1 to Nov. 30.
In 2005, Hurricane Katrina was responsible for the deaths of around 1,500 people on the U.S. Gulf Coast and caused more than $115 billion in damages.
Katrina and Rita, which hit the same year, shut some oil refineries for months resulting in about 142 million barrels of oil product loss.
Offshore drilling in the U.S. Gulf of Mexico is responsible for roughly 30 percent of total domestic oil production and 11 percent of natural gas production, according to 2009 government figures.
In its latest tropical storm update, WSI called for 19 named storms, down from 20 in its June forecast, but maintained its outlook for 11 hurricanes and 5 intense hurricanes of category three or higher.
The 2010 forecast is well above the 1950-2009 averages of 10 named storms, 6 hurricanes, and 2 intense hurricanes.
"Record warm tropical Atlantic Ocean temperatures and an enabling wind shear environment should result in a very active tropical season this year,'' said Dr. Todd Crawford, WSI's chief meteorologist.
The disappearance of the El Nino event and a decrease in vertical wind shear both point to the potential for more Atlantic storms, WSI said.
A slow start to the hurricane season led to the downward revision in named storms. A pocket of dry air in the Atlantic is likely to limit development in the near term, WSI said, while August to October is expected to be a very active period.
WSI's models also indicate that the area from the Outer Banks of North Carolina northward to Maine is twice as likely as normal to experience a hurricane this year.
"Our model suggests that the threat to the Northeast coast this season is on a par with that in Florida and the Gulf coastal states,'' WSI said.
The Atlantic hurricane season runs from June 1 to Nov. 30.
In 2005, Hurricane Katrina was responsible for the deaths of around 1,500 people on the U.S. Gulf Coast and caused more than $115 billion in damages.
Katrina and Rita, which hit the same year, shut some oil refineries for months resulting in about 142 million barrels of oil product loss.
Offshore drilling in the U.S. Gulf of Mexico is responsible for roughly 30 percent of total domestic oil production and 11 percent of natural gas production, according to 2009 government figures.
Tuesday, July 20, 2010
Investor Face Uphill Battle with Liability Lawsuits Against BP
Shareholders angry about BP Plc's battered stock price are heading to the courthouse in hopes of reclaiming some of their losses, but they face an uphill battle.
Since the Deepwater Horizon oil rig exploded in April, several BP shareholders have filed lawsuits accusing the company of breaking securities laws and hiding the risks of its drilling operations. The stakes are potentially huge, with the BP's market value down as much as $100 billion since the disaster.
Some of the largest U.S. pension funds could join the battle. Already, the $132.6 billion New York State Common Retirement Fund has said it wants to be named lead plaintiff so it can direct the investor litigation.
"BP was telling the world that they are really a safe company,'' said Houston-based plaintiffs' lawyer Mark Lanier. ''What was being told to the public -- including the shareholders -- was a fraudulent facade.''
Lanier said he might get involved as an attorney for plaintiffs in the proposed shareholder class-action litigation. He said he already was preparing to file a lawsuit on behalf of former BP workers who hold company stock in their retirement plans.
But experts say investors will probably have a tough road ahead in court, since it could be hard for them to unearth any evidence about the company's disclosures on its safety procedures that rises to the level of securities fraud.
"It's entirely possible that (BP) made statements and honestly believed them and they were dead wrong,'' said James Cox, a professor at Duke University Law School. "That's not a basis for liability under securities law.''
A spokeswoman said BP does not comment on legal actions.
SMOKING GUN
Securities litigation represents only a small segment of the more than 300 total lawsuits brought against BP so far. A federal judicial panel is scheduled to meet on July 29 in Boise, Idaho, to consider how to consolidate the various cases.
Shareholder lawsuits must be certified as class-actions by a court before investors can sue collectively. Typically, about one-third of shareholder lawsuits are thrown out, and two-thirds settle. They rarely go to trial.
Cox said shareholders would be lucky to get a settlement of $10 million to $20 million, which would be a pittance divided among the large number of affected investors.
That would be a far cry from the biggest recoveries in class-action litigation, the $6 billion to $7 billion awarded in the cases of WorldCom Inc. and Enron Corp.
Those cases differed from BP in that they stemmed from financial fraud, such as claiming phantom profits, rather than potential misrepresentations about safety. Enron and WorldCom also sold lots of securities in the period covered by the case, and plaintiffs were able to target third parties such as banks and underwriters.
BP investors do have a potentially powerful ally: the U.S. government. U.S. investigations could do the heavy lifting for plaintiffs, possibly using broad subpoena powers to turn up damning evidence.
The U.S. Departments of the Interior and Homeland Security are jointly investigating the rig disaster, and congressional committees are as well. The U.S. Department of Justice has also said it would open civil and criminal probes.
"You want a smoking gun,'' said Adam Savett, director of securities class actions at the Claims Compensation Bureau in Conshohocken, Pennsylvania. "A document that goes to the board room and says: 'We're not living up to industry standards, and we're not safe, and on and on.'''
But even that type of evidence might not be enough to prove securities fraud, said Jill Fisch, a professor at the University of Pennsylvania Law School in Philadelphia.
Shareholders may have little recourse unless documents show that top management knew, for example, that the company was violating specific safety regulations while publicly stating it was exceeding them and that those rules were critical to their business.
BP has already scored one victory. The U.S. Supreme Court's recent ruling in an unrelated case involving National Australia Bank essentially limited BP's liability in the United States to losses suffered by U.S. shareholders.
By excluding foreign holders of BP shares, the universe of potential plaintiffs could be cut by as much as 80 percent, said University of Michigan Law School professor Adam Pritchard.
For BP, whose spill-related legal woes are expected to drag on for years, the stockholder lawsuits may end up being a relatively minor problem, said Savett, of the Claims Compensation Bureau.
"They have a public relations nightmare,'' he said, "but I don't think they have a securities litigation nightmare.''
Since the Deepwater Horizon oil rig exploded in April, several BP shareholders have filed lawsuits accusing the company of breaking securities laws and hiding the risks of its drilling operations. The stakes are potentially huge, with the BP's market value down as much as $100 billion since the disaster.
Some of the largest U.S. pension funds could join the battle. Already, the $132.6 billion New York State Common Retirement Fund has said it wants to be named lead plaintiff so it can direct the investor litigation.
"BP was telling the world that they are really a safe company,'' said Houston-based plaintiffs' lawyer Mark Lanier. ''What was being told to the public -- including the shareholders -- was a fraudulent facade.''
Lanier said he might get involved as an attorney for plaintiffs in the proposed shareholder class-action litigation. He said he already was preparing to file a lawsuit on behalf of former BP workers who hold company stock in their retirement plans.
But experts say investors will probably have a tough road ahead in court, since it could be hard for them to unearth any evidence about the company's disclosures on its safety procedures that rises to the level of securities fraud.
"It's entirely possible that (BP) made statements and honestly believed them and they were dead wrong,'' said James Cox, a professor at Duke University Law School. "That's not a basis for liability under securities law.''
A spokeswoman said BP does not comment on legal actions.
SMOKING GUN
Securities litigation represents only a small segment of the more than 300 total lawsuits brought against BP so far. A federal judicial panel is scheduled to meet on July 29 in Boise, Idaho, to consider how to consolidate the various cases.
Shareholder lawsuits must be certified as class-actions by a court before investors can sue collectively. Typically, about one-third of shareholder lawsuits are thrown out, and two-thirds settle. They rarely go to trial.
Cox said shareholders would be lucky to get a settlement of $10 million to $20 million, which would be a pittance divided among the large number of affected investors.
That would be a far cry from the biggest recoveries in class-action litigation, the $6 billion to $7 billion awarded in the cases of WorldCom Inc. and Enron Corp.
Those cases differed from BP in that they stemmed from financial fraud, such as claiming phantom profits, rather than potential misrepresentations about safety. Enron and WorldCom also sold lots of securities in the period covered by the case, and plaintiffs were able to target third parties such as banks and underwriters.
BP investors do have a potentially powerful ally: the U.S. government. U.S. investigations could do the heavy lifting for plaintiffs, possibly using broad subpoena powers to turn up damning evidence.
The U.S. Departments of the Interior and Homeland Security are jointly investigating the rig disaster, and congressional committees are as well. The U.S. Department of Justice has also said it would open civil and criminal probes.
"You want a smoking gun,'' said Adam Savett, director of securities class actions at the Claims Compensation Bureau in Conshohocken, Pennsylvania. "A document that goes to the board room and says: 'We're not living up to industry standards, and we're not safe, and on and on.'''
But even that type of evidence might not be enough to prove securities fraud, said Jill Fisch, a professor at the University of Pennsylvania Law School in Philadelphia.
Shareholders may have little recourse unless documents show that top management knew, for example, that the company was violating specific safety regulations while publicly stating it was exceeding them and that those rules were critical to their business.
BP has already scored one victory. The U.S. Supreme Court's recent ruling in an unrelated case involving National Australia Bank essentially limited BP's liability in the United States to losses suffered by U.S. shareholders.
By excluding foreign holders of BP shares, the universe of potential plaintiffs could be cut by as much as 80 percent, said University of Michigan Law School professor Adam Pritchard.
For BP, whose spill-related legal woes are expected to drag on for years, the stockholder lawsuits may end up being a relatively minor problem, said Savett, of the Claims Compensation Bureau.
"They have a public relations nightmare,'' he said, "but I don't think they have a securities litigation nightmare.''
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