Did AIG Chief Order Late Trade?
By MONICA LANGLEY
Staff Reporter of THE WALL STREET JOURNAL
May 11, 2005; Page C1
Maurice R. "Hank" Greenberg, as chief executive officer of American International Group Inc., ordered a reluctant AIG trader to buy 250,000 of AIG's sinking shares near the market close on the day the insurer disclosed it had received regulatory subpoenas into its accounting, a person familiar with the matter says.
The directive – and at least two others by Mr. Greenberg – are the subject of state and federal probes into whether the once-powerful insurance titan sought to manipulate AIG's share price. The probes could pose new problems for Mr. Greenberg, who resigned as AIG's CEO in March.
The AIG trader told Mr. Greenberg the transaction could be viewed as improper, the person said, because it was too close to the market close. Under securities law, a company loses a "safe harbor" of buying its own shares if it makes the transaction in the final 10 minutes of market trading. Indeed, the trading firm on the floor of the New York Stock Exchange that oversees trading of AIG shares refused to accept the order, the person said. It is unclear whether the AIG trade was ever done.
Howard Opinsky, a spokesman for Mr. Greenberg, said: "We can't comment because we don't have access to the tapes, the transcripts or the substance of conversations contained on them." An AIG spokesman said it is cooperating with all probes.
The inquiry is in the early stages and may not result in any charges, people familiar with the probe say. Companies are safe buying their stock if certain guidelines pertaining to the size of the order, time of the trade, price and execution are followed. Outside those guidelines, purchases aren't necessarily illegal, but face greater scrutiny.
The key will be the timing of the order and Mr. Greenberg's intent. A CEO could be charged with conspiracy or market manipulation if he is trying to buy his company's stock for the purpose of moving the price, legal specialists say. "It's extremely rare for a CEO to call a trading desk personally -- which suggests a focus on price, not investment," says Steven Thel, law professor at Fordham University in New York. A chief executive can defend a buyback by saying the stock was a good investment but can't buy back shares to support a price or prevent it from falling, he says.
AIG, facing broad investigations into its practices for insurance transactions, has acknowledged that a variety of improper accounting issues would slash $2.7 billion, or 3.3%, off its net worth.
At issue in the latest controversy is trading on Feb. 14. Before the market opened that day, AIG issued a news release disclosing that the Securities and Exchange Commission and state regulators had issued subpoenas to AIG seeking information on its accounting for "non-traditional insurance products."
Trading in AIG shares that Monday was hectic. More than 14.4 million AIG shares changed hands, compared with average daily trading volume of less than 6.5 million. The shares soon began sinking from the $73.12 close the previous Friday.
At around 3:50 p.m. on Feb. 14, 10 minutes before the closing bell on the NYSE, Mr. Greenberg called the AIG trader with urgent orders: Buy 250,000 shares immediately to keep the share price above $73, according to a person familiar with the call.
The trader told Mr. Greenberg he couldn't place the order, because it was timed so close to the end of the trading day, the person said. Mr. Greenberg ordered the trader to do it anyway, this person says. When the AIG trader attempted to make the trade, the NYSE "specialist" -- the elite floor traders who oversee the auctioning of shares and sometimes buy and sell shares for their own accounts to keep orderly markets -- wouldn't accept the order, this person said. The stock wound up falling 2.2% that day to $71.36 on the Big Board.
Mr. Greenberg is likely to have spoken with Keith Duffy, an experienced trader on the trading desk of AIG's global investments unit, or another trader, Matthew Wojcik, according to people with knowledge of the situation.
Mr. Duffy didn't return phone calls for comment. "This is a very uncomfortable situation," Mr. Wojcik said, but refused to comment further.
In addition to the Feb. 14 call, Mr. Greenberg directed AIG's trader, Mr. Duffy, to buy back shares on two other days in February, according to a person familiar with the matter. On Feb. 3, he told Mr. Duffy to buy AIG shares to keep the stock price above $66, and on Feb. 22, the AIG chief directed him to buy shares to keep the price above $68, this person said. On both occasions, the purchases were made, this person said. It is unclear what times and how many shares were involved.
The February phone calls came to light after a trader informed AIG management a few weeks ago, according to people familiar with the matter. Because AIG is under investigation by many regulatory authorities, the company turned over the information to its outside lawyers.
The outside lawyers forwarded the incidents to the New York attorney general's office and the U.S. attorney's office. Federal prosecutors already are looking into an incident in which Mr. Greenberg pressed Big Board executives in 2001 to support AIG stock when the insurer was closing an acquisition. Mr. Greenberg previously has said his efforts on behalf of AIG's stock were proper.
AIG's board has approved buybacks in an aggregate number under conditions deemed appropriate by AIG executives, a person familiar with the matter said. Typically, Mr. Greenberg or two other AIG executives would order buybacks of 250,000 shares and occasionally 500,000 shares, if significant numbers of sell orders were pouring in, this person said. |
