Former A.I.G Chief Pays $15 Million to Settle with S.E.C

Following a 4-year investigation by the the U.S. Securities and Exchange Commission (S.E.C), the man who ran American International Group (A.I.G) for almost 4 decades has agreed to pay $15 million to settle a suit relating to financial irregularities.

Maurice R. Greenberg left A.I.G in 2005, long before the company, faced with the prospect of going out of business, was forced to accept $180 billion from the U.S. government in order to survive. As a result of accepting the bailout money A.I.G are now 80% owned by U.S. taxpayers. But the revelations that its long-standing Chief Executive knowingly misrepresented the strength of A.I.G appear to be yet another indicator of something badly wrong at the very heart of the organization, in truth beyond the influence of just one man, which nearly resulted in its demise. The announcement of Mr Greenberg's settlement, and that of a smaller settlement of $1.5 million by Howard I. Smith, a former Chief Financial Officer of A.I.G, came on the day that the S.E.C finally revealed the details of the accusations made against the man who was instrumental in making A.I.G one of the world's leading insurance firms. In essence Greenberg was accused of involvement in “numerous improper accounting transactions” that made his company's earnings appear to be far more than they actually were. The fraud that was discovered related to the period 2000-2005 and, according to the New York Times, mainly consisted of "fake reinsurance transactions, efforts to mask losses by using offshore shell entities and other transactions that seemed to bolster A.I.G.’s reserves and gains from investment income". Other executives of A.I.G were implicated in the fraud, as were executives of General Re, the reinsurance company that is a part of Berkshire Hathaway Inc. The latter organization has as its chairman, CEO and largest shareholder Warren Buffet, one of the richest men in the world. Marketwatch confirms that the A.I.G and General Re executives in question have already been sentenced for their part in the fraudulent activities. It further reports that A.I.G as a company reached a settlement with regulators in 2006 of $1.6 billion. A.I.G were unable to recoup that settlement money from Mr Greenberg himself when a civil suit accusing him of wrongfully acquiring $4.3 billion in stock in 2005 was unsuccessful. The statements issued today on behalf of the S.E.C and Mr Greenberg do seem to be rather contradictory. Firstly Robert Khuzami, the head of enforcement at the SEC, had this to say about the findings of his division's investigation:

Corporate leaders cannot avoid the truth and consequences of their companies' performance by using improper accounting gimmicks and signing off on distorted financial reports. Greenberg and Smith oversaw various improper transactions that presented a false financial picture and allowed A.I.G. to claim success in meeting its performance goals

C.V. Starr & Company, Mr Greenberg's investment fund, seemed to have a slightly different interpretation of events in the statement that they issued, which said:

Mr. Greenberg appreciates the S.E.C.’s recognition that he personally should not be charged with any fraud and the settlement is recognition of his lack of responsibility, even as a control person, for the vast majority of accounting issues included in A.I.G.’s restatement and the S.E.C.’s charges against the company

In a slight aside Marketwatch said that a "short squeeze" has seen A.I.G's shares virtually double in value during the course of this week.