Reuters reported that Hank Greenberg has entered into agreements to sell all of his shares in AIG to another entity he controls, Starr International Company.

Maurice "Hank" Greenberg, the former head of American International Group, Inc. (AIG.N), which was rescued by a federal bailout, has agreed to sell his nearly 12.9 million shares of AIG to Starr International, according to an agreement filed on Friday.

Greenberg has also entered into agreement to sell shares of AIG owned by other entities that he controls, all to Starr International.

In addition, the agreement calls for Starr to purchase the Greenberg Foundation’s 989,308 shares, the Greenberg Joint Tenancy Co.’s 25.3 million shares, and the Universal Foundation’s 2.1 million shares under the same terms. Greenberg controls all of the selling entities.

Starr is also buying 10.5 million shares from an entity called C.V. Starr and another 8.58 million shares from C.V. Starr and Trust, Inc., two other units led by Greenberg, according to the filing.

Starr, a company owned and named after the founder of AIG, Cornelias Van Der Starr, was already the largest single shareholder in AIG until the federal bailout of AIG gave 80% control to the government.

Starr International controls 205.8 million AIG shares.

Before the U.S. government’s $150 billion bailout in September, Starr International was AIG’s largest shareholder. In exchange for the bailout, taxpayers received a nearly 80 percent stake in the company.

Some background about Starr International and AIG:

You should begin by reading this 2005 article in the Wall Street Journal, it depicts a scene that appears to come straight from the pages of an Edith Wharton novel.

In an annual ritual, an elite group of executives and retirees of insurance behemoth American International Group, Inc. files into a giant boardroom here, some traveling from as far away as Japan or Europe. They each pick up an envelope with their name on the front and a single sheet of paper inside.

It’s a two-line entry: how many preferred shares the recipient got that year in a private partnership called C.V. Starr & Co. that invests money for favored AIG executives — and how much their previous stake’s value climbed in the year. The chairman of C.V. Starr, Maurice R. "Hank" Greenberg, usually gives a quick update of the business, an insurance agency launched decades ago by AIG’s founder, Cornelius Vander Starr.

Hardly anyone asks a question, say several people who have attended the meetings. Those who do are chastised. The meeting may last as little as 20 minutes before breaking for dinner, but attendees wouldn’t miss it for anything. C.V. Starr owns $2.5 billion of AIG stock, and its profits are meant to be shared by the people in the room, whose numbers have swelled to about 80 from a handful a half century ago.

"It is the ultimate accolade," says Mr. Greenberg. In an interview Friday, his first public remarks since his 37-year reign as head of AIG abruptly ended, he says membership "makes people feel that they are part of a club."

Starr International was created out the holdings of Mr. Van Der Starr:

Spitzer said Greenberg was an executor of the estate of his mentor, Cornelius Vander Starr, who created a worldwide network of insurance companies, including AIG, in the early 1900s. Starr died Dec. 20, 1968 and Greenberg was one of the executors of the estate, according to Spitzer’s letter.

In 1969 and 1970, the estate sold Starr’s shares in American International Underwriters Far East Inc., C.V. Starr & Co., Inc., and Starr International Co. The shares were purchased by C.V. Starr & Co., Inc. and Starr International Co., which were owned and controlled by Greenberg and other close associates of Starr, according to the letter.

Starr international is the holding company of the assets of the Starr Trust:

In 2004, Starr International (SICO), a private Panamanian company, which has assets worth more than $20 billion, and Starr International Charitable Trust, moved their headquarters to Dublin from Bermuda.

Starr International Charitable Trust of Dublin is the ultimate beneficiary of SICO should the latter ever be dissolved. The structure is similar to the Irish Times where a standard limited company runs the operations while it is ultimately controlled by a charitable trust.

SICO is controlled by the eighty-one-year-old Maurice "Hank" Greenberg and he is also chairman of the charity.

Greenberg, who was ousted as chairman of the world’s largest insurer AIG following an investigation by the outgoing New York Attorney General Eliot Spitzer into transactions with Berkshire Hathaway’s General Re, does not own SICO’s stock but he continues to wield influence because the company holds shares in AIG worth more than $20 billion.

So, let me tie this all together for you. The shares once held by AIG founder Cornelius Van Der Starr were purchased by Starr International and related companies (SICO). SICO is the holding company for the assets held in trust by the Starr Trust and C.V. Starr and Trust, Inc. If you get picked to be a beneficiary of the Starr Trust, you have a retirement payout worth millions or billions. Not only that, but who becomes a beneficiary, and the amount by which one benefits, seems to be somewhat arbitrary. That allows those who control SICO and the Trust a lot of discretion to move money around.

So, while the press and the President were howling about bonus payments worth hundreds of thousands of dollars, or maybe millions, the members of the club, that group of "insider" insiders beholden to the Starr trusts, were on the receiving end of many millions, and maybe billions.

I wonder if they had a good laugh.

Now, Greenberg is moving to consolidate all the AIG shares he controls into a single vehicle, Starr International Co. Is he preparing for a bankruptcy play? Some sort of proxy fight? Is he using the assets of Starr International to cash out at a supported price? The deal guarantees him the greater of $1.25 per share price or the closing price on the day immediately prior to the day of the sale.

One thing is for sure, nobody moves this many shares and this much money around just for the heck of it.

When the new "Pecora Commission" is established, I would expect to see a fair amount of testimony and investigation related to this, as well as other AIG transactions. There is a mystery unfolding here.