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Greenberg (pg. 7)

By James Bandler, editor at large, with Roddy Boyd and Doris Burke
Last Updated: October 7, 2008: 10:10 AM ET

Over the next few months a polite but uneasy truce existed between Greenberg and the company. Willumstad and Greenberg had several meetings in the private dining room in Greenberg's apartment building. Both men declared their eagerness to settle the litigation, and Greenberg said he wanted to help the company with its problems. But he wouldn't help until the litigation was settled.

Several times Greenberg also appeared to be on the verge of a settlement with Spitzer's successor as New York State attorney general, Andrew Cuomo. Other Spitzer cases, including the compensation-abuse case against former New York Stock Exchange chairman Richard Grasso, had unraveled. Greenberg's lawyers had always insisted that their client would agree to be deposed under oath if he could first obtain documents he was seeking from AIG that he claimed would exonerate him. After years of fighting AIG, he finally had the documents and was ready to testify. His civil lawyers, led by Boies and Gravante, were urging him to do so, but his criminal lawyer, Robert Morvillo, was adamantly opposed, because testifying under oath would raise Greenberg's exposure to criminal prosecution.

As the deposition showdown approached, the two sides appeared close to a settlement. Greenberg said a settlement was critical so that he could help the company through the crisis. He was prepared to pay New York State as much as $100 million to subsidize home heating costs for the poor. But Greenberg would not agree to have the settlement include language describing the payments as a penalty or fine. He wouldn't even agree to the usual boilerplate language in which the defendant "neither admits nor denies wrongdoing." That nondenial was too much of an admission for Greenberg.

***

It is a cool August afternoon in Switzerland, and Corinne Greenberg is crying.

"It's three and a half years," sighs Mrs. Greenberg. "It's just going to be the rest of our lives. To be battered with no end in sight."

Mrs. Greenberg and her husband are about to have lunch on the veranda of a luxury resort in the Alps. In many ways it is a typical vacation for them. Three briefcases full of legal documents have traveled with the Greenbergs, along with a housekeeper, two lawyers, and a publicist.

"Nobody's interested in justice," Mrs. Greenberg continues.

"Slow down," says Hank Greenberg gently.

"But you did nothing wrong!"

"Life's not bad for us, sweetheart," he reminds her.

In Switzerland, Fortune sees few flashes of the imperial Greenberg of lore. The man pumps his own gas. He pretends to be annoyed but actually seems to enjoy Corinne's interruptions and her lectures about his parking skills. Their Maltese, Snowball, has traveled around the world many times with them and has even been slipped into the occasional state dinner in a bag tucked under a banquet table.

Periodically Greenberg gets updates on AIG's stock price and calls from advisors in New York. This week, for the first time, that price will drop below $20. Never in his wildest dreams, Greenberg says, did he imagine the stock would fall this low.

He is thinking about his legacy. One evening over dinner he tells Fortune about an incident that happened in June. AIG was preparing to run an obituary in its in-house magazine, Contact, about a longtime secretary in the Tokyo office. A draft observed that the woman was the only secretary to have served both the company's founder, Starr, and Greenberg. But Greenberg's name was dropped from the published version. Greenberg believes the omission, which AIG officials insist was innocent, was intentional. "They erased my name. They sanitized it!" Greenberg says, tight-jawed, enunciating every syllable. His intense eyes flash. "The revisionists of history! And that's such a cheap shot."

***

Greenberg returns to New York to find AIG in an accelerated state of meltdown. By Monday morning, Sept. 15, the situation is dire. Federal Reserve officials have been working with AIG lawyers all weekend. The Fed has asked J.P. Morgan Securities and Goldman Sachs to put together a syndicate that would arrange a financing package for AIG. But AIG's needs are too great. At 11:30 a.m. on Tuesday, Willumstad calls New York Federal Reserve president Tim Geithner and says that the company is running out of cash. Unless the Fed takes action soon, AIG will default. Later, Geithner tells Willumstad to sit tight, the Fed is working on something that will require approval of the board of governors. At around 4 p.m. a roomful of AIG executives and lawyers scour a term sheet from the Fed.

After flipping through the pages, Richard Beattie, an outside lawyer for the independent directors, turns to Willumstad. "Well, you finally get your chance to work for the federal government," Beattie says.

"What do you mean?" asks Willumstad.

"They own you now," Beattie replies.

Minutes later Treasury Secretary Paulson calls Willumstad. He tells the CEO he has to step down. Willumstad looks at Beattie. "You're wrong," he tells the lawyer. "I'm not working for the federal government."

At home that night, Greenberg learns about the government loan after reading an AIG regulatory filing, which says the loan is contingent upon shareholder approval. Ever the deal man, Greenberg begins to mull scenarios: He can tap longtime relationships with sovereign wealth funds, carry out a possible rights offering, make as much as $20 billion in asset sales.

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