American International Group (AIG) and its former CEO, Maurice “Hank” Greenberg are facing a civil suit filed by New York Attorney General Eliot Spitzer.
Spitzer’s suit is based on claims that AIG recorded fraudulent transactions in its financial statements to mislead regulators and investors. AIG’s former Chief Financial Officer Howard Smith has also been named as a defendant in the case.
AIG’s lawyers are currently getting ready to file the company’s annual report with the Securities and Exchange Commission. The report has already been delayed three times and must be presented by next Tuesday. The company said that the false financial reporting will reduce its value by as much as $2.7 billion.
“The irony of this case is that AIG was a well-run and profitable company that didn’t need to cheat,” stated Spitzer. “And yet, the former top management routinely and persistently resorted to deception and fraud in an apparent effort to improve the company’s financial results.” MSN Money outlines the crimes that were allegedly committed:
Mr Greenberg and Mr Smith were personally involved in arranging two “sham” reinsurance transactions with General Re, a reinsurer controlled by Berkshire Hathway that inflated AIG’s reserves, the complaint alleges.
Another was that the defendants allegedly hid losses from AIG’s underwriting business by converting underwriting losses to capital losses.
In a third alleged offence, the pair falsely reported the income from the purchase of life insurance policies as underwriting income.
“The AIGs of the world don’t want to get bogged down in a lawsuit with the attorney general of New York or the SEC for that matter,” said former federal prosecutor Jacob Frenkel. “But for an individual of Mr. Greenberg’s stature, the outcome of this case follows him for the rest of his life, which may make the desire for vindication greater.”
AIG shares went up 3% yesterday perhaps based on the fact that Greenberg and Smith are the main targets of the suit rather than the company itself. The shares closed at $55.71.
Chris is a staff writer for Murdok. Visit Murdok for the latest ebusiness news.
