The War on Hank Greenberg
The downtown New York courtroom where 91-year old Maurice R. (“Hank”) Greenberg began testifying this week has all the hallmarks of legal majesty: a robed judge, The Honorable Charles E. Ramos, seated behind an elevated bench; a uniformed bailiff bellowing “all rise” upon the judge’s entrance; the American flag; IN GOD WE TRUST on the wall soaring 20-feet high.
Greenberg, who is a member of the board of the Center for the National Interest, has devoted his life to defending the American freedoms represented by the courtroom, not only as a trained lawyer and corporate titan who built American International Group (AIG), but also through his service in World War II: he was awarded the French Ordre National de la Légion d’Honneur in June 2014, the 70th anniversary of D-Day. Tom Brokaw singled him out as a member of the Greatest Generation, lauding his indomitable work ethic and keen understanding of Asia.
Yet none of this has deterred a series of ambitious New York attorney generals from trying to destroy him. At this trial there is thus a distinct air of overkill: a half dozen lawyers on each side of the well in a room stuffed with more than 50 boxes of documents, whose average age is 16 years, and a half dozen reporters in the jury box—there is no jury in this case—typing furiously as two stenographers record every word. And beneath it all is a miscarriage of justice.
For one, the case is politically motivated. In New York, the attorney general is an elected official, a politician often angling for higher office. This case was filed in 2005 by Eliot L. Spitzer, a Democratic partisan, shortly after Greenberg left AIG. Spitzer sought favorable publicity from pursuing Greenberg, a prominent Republican business leader and confidant of the nation’s senior Republican leadership from Nixon to Reagan and the Bushes—though equally successful working with Presidents from Carter to Clinton to promote American interests.
Spitzer also went after Greenberg’s friends and family. In addition to naming his colleague and AIG finance chief, Howard I. Smith, in the suit, he harassed John C. Whitehead, the former CEO of Goldman Sachs and Republican undersecretary of state, and Kenneth G. Langone, the New York Stock Exchange director who helped found Home Depot. Spitzer targeted Greenberg’s son Jeffrey, then leading Marsh & McLennan, declaring to his Republican predecessor, Dennis C. Vacco, that he was about “to take those mother fuckers down.”
The result in the case of AIG was perverse: Spitzer’s overzealous assault on Greenberg and AIG destroyed AIG’s value for shareholders and employees alike, along with many other constituencies. It is impossible to square this foreseeable outcome with Spitzer’s claim to be protecting the public from corporate malefactors as the self-promoting “Sherriff of Wall Street.”
The ethically-challenged Spitzer—he subsequently resigned New York’s governorship after admitting to attempted criminal evasion of federal banking laws in order to cover up multiple criminal solicitations of prostitution—breached numerous principles of legal ethics in his broadsides. Before filing Greenberg’s case, for example, he lodged accusations on ABC’s Sunday morning political talk show, This Week, violating rules barring prosecutors from prejudicial public comment on pending investigations. Spitzer even suggested a criminal case in the works, which is ludicrous—and never filed—because no crime occurred.
Despite the tawdry origins of this trial, and that most of the claims Spitzer alleged have been dismissed over the years, Spitzer’s successors have kept the case alive for 11 years. Both successors are politically ambitious Democrats: first Andrew M. Cuomo, subsequently elected Governor of New York, and now Eric T. Schneiderman, a former member of the ethically-infamous New York State Senate, likewise signaling gubernatorial visions.
The second defect in the case is that the New York State civil law that Spitzer, Cuomo and Schneiderman invoke, the Martin Act of 1921, is both crude and anachronistic. It permits the state attorney general to enforce state securities laws of all kinds, and quaintly encompasses within “fraudulent practices” a litany of infractions that include administrative faults like failure to pay modest annual registration fees or to provide basic broker-dealer information.
Accordingly, the Martin Act does not require prosecutors to prove deceptive intent (scienter, is the legal term of art). Historically limited to claims against the likes of boiler room stockbrokers and converters of rental apartments into co-ops, Spitzer liked how the statute dispensed with the need to prove scienter, a burden to prosecutors. So he made the Martin Act his weapon of choice against New York executives who might at worst commit the equivalent of foot faults in tennis.
The Martin Act is outdated for another reason: federal preemption. In the 1990s, Congress updated the nation’s securities laws to provide a uniform standard that overrode any contrary state laws, under the Supremacy Clause of the U.S. Constitution. The federal laws have an exception for “fraud” actions, a term of art referring to cases predicated on proving scienter. Since Martin Act cases do not require proving scienter, however, claims under it are not the kinds of fraud cases federal preemption allows states to maintain. The New York prosecutors stipulate that the Martin Act does not require showing scienter, but deny federal preemption.