Spitzer Forgoes Charges in AIG Case

New York Atty. Gen. Eliot Spitzer will not press criminal charges against Maurice “Hank” Greenberg, American International Group Inc.’s former chief executive, the prosecutor’s office said Friday, continuing Spitzer’s preference for civil action.

Spitzer said he was pursuing civil charges against Greenberg when he filed his original lawsuit in May against the 80-year-old insurance executive and others.

This was interpreted as leaving the door open for possible criminal action until a spokesman for Spitzer said Friday that the attorney general had always intended civil litigation and nothing else.

“We said this in the summer,” said Spitzer spokesman Darren Dopp, responding to calls after a Wall Street Journal report Friday said the attorney general had ruled out criminal charges.

The New York lawsuit says Greenberg and former AIG Chief Financial Officer Howard I. Smith took part in fraudulent business deals that exaggerated the strength of the company’s core underwriting business and propped up its stock price. Smith was fired in March as an investigation into the company picked up steam, and Greenberg resigned that same month.

In May, AIG said it had overstated net income for the last five years by $3.9 billion, or 10%.

Greenberg and Smith have said they will fight the allegations in the lawsuit.

Federal prosecutors in New York and the Justice Department are still pursuing criminal probes of Greenberg, a source familiar with the matter has said.

The AIG case marks the third time this year that Spitzer has stepped back from a potential criminal proceeding in a high-profile prosecution.

“People are going to say that Spitzer is scared to pursue criminal cases,” said Steve Thel, a securities law professor at Fordham Law School in New York. “I don’t know that that is true -- criminal cases in this area are awfully difficult to prove.”

The first trial in Spitzer’s investigation of mutual funds, Wall Street stock research and the insurance industry did not go his way. A jury in June acquitted a former Bank of America Corp. broker, Theodore Sihpol, on 29 counts related to allegations that he helped a hedge fund trade mutual funds illegally.

Last month, Spitzer dropped four remaining criminal charges against Sihpol on which the jury had remained undecided.

Thel said a civil judgment could produce desirable results for the attorney general because it could be used to wring cash settlements from those charged.

Spitzer has dropped charges against Paul Flynn, a former managing director of Canadian Imperial Bank of Commerce, who had pleaded not guilty to helping two hedge funds make illegal mutual fund trades. But the attorney general pointed out this week that he had extracted nine guilty pleas in his probe of mutual fund trading and about $3 billion in fines, lowered fees and restitution from companies.