Greenberg (pg.3)

"They must have shown you the picture in your [CIA] training program," one of the Russians insisted.

"Jeez," Greenberg joked. "It must have looked different." He got the business.

When Starr died in 1968, Greenberg was named the company's president. At that point Starr's insurance empire was contained in two operating companies: C.V. Starr, which handled domestic insurance needs for U.S. companies and was based in Delaware, and Starr International Co. (SICO), which did only foreign underwriting and held a Panama charter.

Seeking to consolidate and streamline an increasingly widespread network of operating units, Greenberg initiated a transaction whereby C.V. Starr and SICO swapped out their operating assets to what would become AIG in 1970, receiving blocks of newly issued stock in return. Sporting a sleeker profile, the new AIG - with a portfolio of companies operating since 1920 - went public in 1969.

But the old operating units, SICO and C.V. Starr, didn't go away. As part of its stock swap, SICO, which was the more profitable of the two companies, got a block of what became AIG stock. With dividends reinvested, the value of this block eventually grew to some $22 billion. C.V. Starr, which retained a few specialty insurance lines that the young AIG didn't want, also took what became AIG stock, eventually worth about $5 billion.

For AIG employees, C.V. Starr and SICO became the proverbial brass ring. That's because AIG's top management used shares of the units as incentive pay, doling them out to top performers. There was a big catch: The units could be converted into AIG stock and sold only when a recipient reached age 65 or retired. That kept a generation of AIG employees loyal. The logic was simplicity itself: A fellow could leave to join a rival and earn an extra $30,000 or so a year, or he could cash out his shares at the end of a career for many millions of dollars. As long as he didn't cross Hank Greenberg.

Greenberg also viewed SICO as a corporate reserve for a "very major rainy day." In a flurry of memos to Greenberg in 1980, top AIG executives described SICO as a possible "survival vehicle," an offshore entity that would allow AIG's survival in the event of a "nuclear explosion detonated within the U.S.A." or "open rebellion of a sector of the U.S. population."

In other words, SICO was to be the ultimate life raft for AIG. What no one ever imagined was that the man in the life raft would be Greenberg himself.

***

Hank Greenberg was in a white-hot rage. It was late March 2005, and Greenberg, aboard the company jet, had just canceled a trip to India and ordered his pilot to fly to Switzerland instead. Greenberg needed to clear his head. Maybe in the cold mountain air he'd be able to focus.

Everything was coming undone.

Two weeks earlier AIG's board of directors had forced him to resign his CEO post amid allegations by then New York attorney general Eliot Spitzer that he'd instigated a series of fraudulent transactions to burnish the company's underwriting results. (AIG reduced earnings by $3.9 billion in connection with those transactions and others.)

Spitzer had slapped AIG and then Greenberg with subpoenas and demanded that he testify. Greenberg's lawyers wouldn't let him do that until he'd reviewed all the relevant documents. So Greenberg said he would have to take the Fifth Amendment. But his refusal to cooperate was a violation of AIG policy, which requires employees to assist government investigations, and the board said that he therefore had to step down. His handpicked successor and protégé, English-born Martin Sullivan, became chief executive.

But Greenberg was still chairman - though just hanging on. Relations with the board deteriorated. The Spitzer probe was only the latest in a series of altercations Greenberg had had with the government, and the board was worried. The SEC and the Justice Department had already slapped the company around for helping two client companies cook their books; Greenberg had stonewalled until AIG was threatened with a firmwide indictment. Now Spitzer was on the warpath.

NEXT: Greenberg (pg. 4)

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