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Firm he hired to buff image is suing mogul

Cambridge PR shop says it's owed $2m

They were hired, they say, to buff up the sullied reputation of one of the nation's best-known billionaires, insurance giant Maurice "Hank" Greenberg.

Now, the image-makers at the high-end Cambridge communications firm eSapience Ltd. are suing Greenberg's company for allegedly refusing to pay a $2 million bill.

A key executive of eSapience is no less than the dean of MIT's Sloan School of Management.

The suit, filed this week in US District Court in Boston, shines a light on the inner workings of the uppermost tier of the public relations business, where academics like Sloan dean Richard Schmalensee, a managing director of eSapience, collect fees of up to $1,000 an hour to rub shoulders with industry leaders at New York power lunches.

Greenberg, 81, built American Insurance Group Inc. of New York over a 43-year career into an insurance powerhouse worth $150 billion, making himself a fortune of more than $3 billion, according to the Forbes 400 list, published by Forbes magazine.

But he has needed some better public relations since AIG directors forced him out as chairman and chief executive in March 2005, after Attorney General Eliot Spitzer of New York, who has since been elected governor, brought charges of fraud and insurance and securities violations against Greenberg as part of a wave of white-collar indictments and criminal complaints that roiled Wall Street.

Spitzer later dropped the original criminal charges against him and two of six less severe civil charges. Greenberg has denied any wrongdoing and continues to battle the remaining civil charges. After leaving AIG, he became chief executive of C.V. Starr & Co., a privately held insurance brokerage and investment firm.

Just what Greenberg's firm hired eSapience to do will be a key issue of contention in the suit. Schmalensee and top academics from the University of Chicago and from University College London, also eSapience officers, say they were called in to boost Greenberg's profile through events like an insurance industry seminar last September at the St. Regis Hotel in New York. Greenberg was invited by eSapience to give a keynote address to 50 top insurance executives, according to the lawsuit.

Schmalensee and eSapience executives set up a new think tank, the Barbon Institute, specifically to provide a credible-sounding new platform for Greenberg to give the image-rehabilitating speech at the St. Regis, the suit says. They also organized a separate New York event last September whose keynote speaker was Greenberg's personal lawyer, David Boies, the legendary litigator who represented Al Gore in the 2000 Florida presidential election recount and prosecuted the Microsoft Corp. monopoly antitrust suit for the Clinton administration.

A Starr spokeswoman, Sarah Lubman, confirmed late yesterday that the company had "hired eSapience as a public relations adviser in the spring of 2006."

"After several months, the company decided to end the relationship, and there's now a billing dispute," Lubman said. She added that Greenberg would have no further comment, and she declined to say more about what eSapience was hired to do.

A lawyer for eSapience, Robyn E. Smith, said the firm would have no comment beyond the lawsuit. Schmalensee was on a jet to Beijing last evening, according to an aide, and was unavailable to comment.

On its website, eSapience describes itself as not merely a public relations firm, but "a new media and research entity that shapes the debate on issues that intersect law, economics, and policy" through "a global network of academics and other public intellectuals." The firm publishes journals and specialty books and hosts "closed-door forum" seminars on issues such as healthcare policy and global competition in lush locales such as Lake Como in Italy.

In eSapience's lawsuit, the company says its contract with Greenberg's company also called for it to work on "securing a New York Times journalist who might be inclined to write an article" sympathetically portraying Greenberg's side of his legal battle with Spitzer. No such article was ever published. As part of the contract, the firm negotiated with Cambridge novelist John Sedgwick, author of "The Dark House" and other bestsellers, to ghost-write an autobiography of Greenberg, but no book deal ever ensued, the suit says.

The bills it ran up for work for Greenberg and C.V. Starr, as much as $978,000 a month, "reflected the level of detail, sophistication, and status necessary to present Greenberg in the best light and to assure the presence and participation of key intellectual and public figures" at the events where he was invited, eSapience said.

Those bills included more than $2 million for personal billable hours of eSapience principals, the suit says. Academics such as Schmalensee billed $400 to $1,000 hourly, and consulting team members $175 to $600, according to the suit. Greenberg's firm agreed to pay $254,405 of the bill, but had auditors dispute all the other fees, including 656 specific line-item expenses, the suit says.

"This selective payment of expenses was the result of Starr's effort to ensure that certain vendors who were owed significant sums of money, such as the St. Regis Hotel in midtown Manhattan, a five-star landmark establishment which Greenberg frequents," got paid so they "would not be displeased with Starr and Greenberg," the suit says.

The eSapience firm is seeking to recover the unpaid bills and unspecified additional damages and lawyers' fees.

Peter J. Howe can be reached at howe@globe.com.

(Correction: Because of a reporting error, a Page One story Saturday said former New York attorney general Eliot Spitzer filed criminal charges against Maurice "Hank" Greenberg, former chief executive of AIG International Inc., in connection with alleged securities and insurance fraud. Spitzer said several times in 2005 he would seek criminal charges against Greenberg but never filed them, filing instead six civil charges, two of which he later dropped.)

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