Greenberg (pg. 5)

Greenberg dispatched his toughest trial lawyer, Boies, Schiller partner Nicholas Gravante Jr., to Boston to settle the matter. In a meeting in eSapience lawyers' office, Gravante warned that he'd go to the U.S. Attorney's office in Boston with billing-fraud accusations. Gravante returned to New York with a settlement number that was considerably below Greenberg's ceiling price. "They nearly wet their pants," he later told a member of the Greenberg team.

***

Hank Greenberg looked annoyed. It was a Monday afternoon in March 2008, and he was in the midst of an investment meeting at his Park Avenue office when C.V. Starr's chief financial officer, Howard Smith, burst into the room. Smith, who had been forced out of AIG for his alleged role in the accounting scandal - he denies all charges - shoved a piece of paper in front of his boss, who sat behind his desk facing the door. Greenberg looked quickly at the paper, a printout from a Bloomberg terminal: NEW YORK'S SPITZER TIED TO PROSTITUTION RING.

Greenberg looked at it again. "Get the fuck out of here!" he said. "I'm working."

"Well, there is going to be some kind of press conference in 20 minutes," Smith insisted.

Greenberg and his lieutenants gathered in a conference room to gape at the flat-screen television as Spitzer and his wife approached the microphones. "I have failed to live up to my standards of conduct," the governor said.

Soon Greenberg's phone was buzzing with celebratory calls from friends. One of the first came from Ken Langone, co-founder of Home Depot and a Spitzer critic. "Bingo!" Langone shouted.

That afternoon, returning to the family's Fifth Avenue apartment, Corinne Greenberg found building employees dancing in the lobby. "Big news in a small town, Mrs. Greenberg," one shouted.

That night the Greenbergs opened a bottle of red wine to commemorate the news and mull its significance. Greenberg tried to separate the emotional satisfaction he felt from the hard facts. What did this mean for him? Not much, he decided. Spitzer had been out of the picture since he became governor in 2007. The government investigations were rolling along anyway with a momentum that seemed irresistible.

Greenberg's camp was already trying to process the news coming from a federal courtroom in Hartford, where five defendants had been on trial in a complex securities-fraud case. The defendants were former top executives from Gen Re and AIG. They had structured a phony reinsurance transaction to try to mask a problem of shrinking loss reserves at AIG, the issue also at the heart of Spitzer's AIG probe. Greenberg wasn't a defendant in the criminal case. And he wasn't a witness. But he figured large in the proceedings. Prosecutors used two words to describe him: unindicted co-conspirator.

Prosecution witnesses told the jury that the fraudulent transaction started with an Oct. 31, 2000, phone call by Greenberg to Ron Ferguson, then CEO of Gen Re and one of the defendants in the case. They told the jury that Greenberg, in calling Ferguson, proposed fixing a shrinking loss-reserve problem with a phony reinsurance deal. The jury listened as the witness outlined the contours of the scheme: Gen Re would ostensibly buy $600 million in reinsurance coverage from AIG for a $500 million premium, creating the appearance of a $100 million risk. AIG would boost its reserves by $500 million. Gen Re would pretend that it had requested the transaction and would pay AIG a $10 million fee. But in a secret, unwritten side deal, AIG agreed to return the fee and pay Gen Re $5 million for the deal. Greenberg, one prosecution witness testified, approved the $5 million payment and called Ferguson for status updates on the deal on an almost daily basis.

Much of the evidence presented by prosecutors involved recordings of telephone calls between Gen Re officials. In one conversation caught on tape, Gen Re's former general counsel said AIG's approach to compliance has always been "Pay the speeding ticket."

"How much of this sort of thing do they do? I mean how much cooking goes on in there?" another Gen Re official asked in a different call. "They'll do whatever they need to to make their numbers look right."

NEXT: Greenberg (pg. 6)

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