Last Updated: May 21, 2008: 1:27 PM EDT
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New battle for Hank Greenberg

Lawyers for the former AIG chief will do all they can to keep him from facing possible SEC charges. But will it be enough?

By Roddy Boyd, writer

(Fortune) -- Maurice "Hank" Greenberg is famous for his combativeness with regulators and opponents. But his mettle is sure to be tested in coming days, as his lawyers make one last pitch to prevent the filing of possible Securities and Exchange Commission charges against him.

Greenberg, the former longtime AIG chief, has received a so-called Wells Notice that essentially gives his lawyers one more chance to convince the SEC not to file civil charges. The SEC's case centers on Greenberg's role in a 2000 reinsurance transaction between AIG (AIG, Fortune 500) and General Re, a reinsurer owned by Warren Buffett's Berkshire Hathaway (BRKA, Fortune 500).

The transaction has come back to haunt executives at both AIG and General Re. In January, four former Gen Re officials and one ex-AIG executive were convicted of fraud for their roles in arranging the deal. According to prosecutors, the Gen Re reinsurance allowed AIG to inflate its reserves to the tune of $500 million, misleading investors and bolstering the company's stock price. Former General Re chief Joseph Brandon, who was a top executive at the reinsurer at the time the deal was struck, wasn't charged, but he stepped down earlier this year in a move that cleared the way for prosecutors to close their investigation of General Re.

The news of the possible SEC charges comes on the heels of U.S. District Judge Christopher Droney's ruling last week to deny the five defendants' bid for a retrial. He also said there was "sufficient evidence" for a jury to conclude that Greenberg had initiated the problematic transaction.

To be fair, Droney's opinion is just that: It's his interpretation of events after presiding over a trial, and has no official legal standing. Still, Droney's analysis does read like a first draft of a likely filing from an SEC lawyer.

Droney wrote that the government "presented sufficient evidence that, starting with Greenberg's Oct. 31, 2000, phone call to [former Gen Re chief Ronald] Ferguson, there was an agreement to carry out a transaction to artificially inflate AIG's loss reserves and deceive AIG's investors about the amount of the company's loss reserves and the quality of its earnings."

News of Greenberg's Wells Notice comes as he wages a bitter - and, as Fortune concluded, a likely more successful - battle with AIG. That dispute centers on Greenberg's effort to transform Starr International Corporation from a company that served mostly to compensate senior AIG managers into a smaller, more nimble competitor to AIG. But Greenberg, a big AIG shareholder, has recently lashed out at the company on other fronts, saying two massively quarterly losses have left it in "crisis" and that management has mishandled the credit crisis.

Greenberg is not without resources in his fight with regulators. He will assuredly mount an aggressive defense and, in all candor, can outspend the SEC if the matter goes to trial. But as Greenberg's defense team at Boies, Schiller prepares him for a deposition - after a three-year legal battle - with the New York State attorney general over civil charges resulting from the same Gen Re transaction, it is becoming clear that his lawyers' ability to tie up regulators with motions is drawing to a close.

Greenberg's chief trial attorney, Robert Morvillo, told Fortune in an emailed statement, "This is a step in the process. The issues have been narrowed down to a small number of issues. We remain confident of our position on the merits, and we believe that none of the remaining issues are material to AIG's financial statements. When the Commission has had the opportunity to consider all the facts, we believe that they will agree." To top of page

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