Wall Street Titan Takes Aim at Law That Tripped Him Up

“I fought two wars for my country. This is another war,” the Wall Street titan Maurice Greenberg said of his effort to curb New York State securities laws.

At 92, Maurice R. Greenberg is not done fighting.

Mr. Greenberg, known as Hank, is a revered figure on Wall Street who built the American International Group into an insurance giant, only to lose it in 2005 amid a securities fraud investigation. He fought the New York attorney general’s office for a dozen years before he agreed to pay $9 million as part of a civil settlement last year.

Despite the settlement, the battle continues. Mr. Greenberg has taken aim at the Martin Act, the sweeping state securities law that was used against him. The far smaller insurer where Mr. Greenberg is serving as chief executive, C.V. Starr & Company, has helped develop, circulate and lobby for new federal legislation that would pre-empt the Martin Act and other state securities laws.

“I care about my country and I care about the rule of law,” Mr. Greenberg, a veteran of World War II and the Korean War, said in a feisty interview this past week. “I fought two wars for my country. This is another war.”

The Martin Act, a 1921 New York securities law that predates the creation of the federal Securities and Exchange Commission, grants sweeping powers exceeding even those of Washington. In addition to bringing the case against Mr. Greenberg, the former New York attorney general Eliot Spitzer used the act to force investment banks to curb abuses related to how analysts overhyped stocks and to crack down on illegal trading in the mutual fund industry.

Although there have been attempts to limit the Martin Act in the past, Mr. Greenberg’s bid is gaining traction. He is working alongside a powerful ally, the U.S. Chamber of Commerce, and has the backing of Wall Street Journal editorial page. And he has had a warm relationship with President Trump.

State securities regulators say that the legislation would gut their powers, even though relatively few executives were held to account following the financial crisis.

“This bill would be terrible for investors all across America,” Eric Schneiderman, the attorney general of New York, said in an interview. “For every Fortune 500 C.E.O. who walks away with a bruised ego, there are dozens and dozens of lower-level scam artists who we put out of business through the state securities laws.”

Joseph P. Borg, the longtime director of the Alabama Securities Commission, said, “Any way you look at it, this bill is going to put investors at not only a disadvantage, but deep in harm’s way.”

“If I can’t prosecute, then what’s the deterrent?” added Mr. Borg, who is also the head of the North American Securities Administrators Association. “If I can’t bring civil action, then what’s the deterrent? None.”

Critics of the bill also said it represented the kind of rollback of states’ rights for which Republicans once criticized Democrats. President Trump is already challenging the states on sanctuary cities and California’s power to set its own car regulations.

The securities bill was introduced by Representative Tom MacArthur, a New Jersey Republican and a former A.I.G. executive who once worked for Mr. Greenberg. C.V. Starr, Mr. Greenberg’s current company, has backed Mr. MacArthur’s campaign. A spokesman for the congressman said he was unavailable to comment.

Blair Holmes, a spokeswoman for the U.S. Chamber, said the organization was reviewing the legislation. “This issue has always been important to many members,” she said.

If it goes through, the bill’s text says it would “provide for exclusive federal jurisdiction over civil securities fraud actions.” It also says that “differing state regulatory requirements” create “inefficiencies,” raise costs and harm markets “without providing material investor protection benefits.”

Mr. Greenberg and his staff said the legislation would only affect civil enforcement related to stocks, bonds and other securities listed on national exchanges. State regulators disagree, saying it would also hamper their criminal jurisdiction related to such securities.

The bill language says that state officials can proceed with criminal enforcement provided they “comply in all respects with the legal requirements for securities fraud under federal law.” State regulators fear that such language is specifically intended to curtail their ability to bring criminal cases.

One feature of the Martin Act is that it does not require the state to prove that someone actually intended to defraud people, a lower bar than what is required at the federal level.

“It’s outrageous,” Mr. Greenberg said of the intent issue. Asked if legislation broadly targeting all states was an appropriate remedy, he replied: “So is it better to have a law that violates every principle? Is that better? You can be tried for something without having to prove intent? Are we a third world country?”

The case against him centered around two sets of transactions. One of them inflated A.I.G.’s reserves at a time when analysts were criticizing the company for its flagging reserves. In a second series of deals, the insurer invested in an offshore entity in a way that allowed it to mask losses from one of its divisions.

After Mr. Greenberg’s ouster, A.I.G. restated its earnings by more than $3 billion. In 2006, the company reached a $1.64 billion settlement with federal, state and insurance regulators related to business practices stretching back two decades.

Mr. Greenberg has disputed much about the case.

“Eliot Spitzer decided he wanted to take me down,” he said. “He was successful. Destroyed a company that had a $180 billion market cap. Now it’s what? A fraction of that. There’s been seven C.E.O.s since I left the company. Destroyed a great asset.”

But in a statement he made as part of his 2017 settlement, he said he “initiated, participated in and approved” the transactions that “inaccurately portrayed the accounting, and thus the financial condition and performance for A.I.G.’s loss reserves and underwriting income.”

A.I.G. also faced a reckoning and near failure in the financial crisis.

“The notion that we would weaken one of the few statutes that was used effectively to confront structural failures on Wall Street defies logic, at a moment so soon after the economic cataclysm of 2008,” Mr. Spitzer said in an interview.

Mr. Greenberg said he decided to settle last year because “there’s a limit to how much any individual can endure fighting” the state. He added: “There was no acknowledgment of any wrongdoing, No. 1. And that’s important.”

Mr. Schneiderman, the attorney general who settled the case, said Mr. Greenberg’s case was “very straightforward,” noting that A.I.G. had restated the transactions on its books.

Regarding the legislation, he added, “I don’t know anyone who is saying we should have less regulation of securities fraud.”

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