Greenberg, Smith Agree to Binding Arbitration With AIG

Maurice "Hank" Greenberg, former chief executive officer of American International Group Inc., and the company's former chief financial officer, Howard I. Smith, have agreed to terms for binding arbitration to settle the "various legal disputes" each has with the company, according to a statement from AIG.

A filing with the U.S. Securities and Exchange Commission details the arbitration plan, which focuses primarily on settling all AIG (NYSE: AIG | Quote | Chart | News | PowerRating) claims against Greenberg and Smith in the company's consolidated derivative litigation -- based in the U.S. District Court for the Southern District of New York -- and "all claims of Greenberg and Smith against AIG for advancement or indemnification."

The arbitration doesn't include pending stockholder cases against the two former AIG officials.

The single "impartial and unbiased" arbitrator will be mutually agreed on and will hold a preliminary hearing in New York City no later than Oct. 15, according to the SEC filing.

While dealing with these matters, the agreement says that the two sides may also consider arbitrating on other disputes between AIG and Greenberg, including those related to another case: Starr International Co. Inc. vs. American International Group Inc. Meanwhile, the parties agree to halt proceedings in those other cases.

According to the company statement, "The parties have concluded that it is preferable to resolve as many of their disputes as possible in a private setting, and in a more expeditious and cost-effective manner." When asked for further details, a spokesman for AIG declined further comment, saying the SEC filing included all the available information.

In 2006, AIG consented to a final judgment on SEC accounting fraud charges, without admitting or denying allegations that it falsified its financial statements from at least 2000 until 2005 through a variety of sham transactions and entities, and reported materially false and misleading information about its financial condition (BestWire, Feb. 10, 2006). In 2007, C.V. Starr & Co., a company controlled by Greenberg, filed suit to recover hundreds of millions of dollars in profits and benefits that it says AIG realized from 2000 to 2005 from transactions with C.V. Starr (BestWire, June 27, 2007). In July, U.S. District Judge Jed Rakoff ruled in favor of Greenberg and Starr International Co. in a case revolving around AIG stock that the company controlled and which AIG claimed was to be used as an executive compensation fund for AIG. AIG planned an appeal (BestWire, July 13, 2009).

Greenberg was forced out during investigations into AIG's accounting. He recently agreed to pay $15 million to settle regulators' allegations on improper accounting transactions at AIG (BestWire, Aug. 6, 2009). Smith agreed to pay $1.5 million to settle SEC allegations (BestWire, Aug. 17, 2009).