Greenberg agrees to $15m SEC settlement

A four-and-a-half-year investigation conducted by the Securities
and Exchange Commission (SEC) has culminated in the US regulator
charging former American International Group (AIG) chairman and CEO
Maurice “Hank” Greenberg and former vice-chairman and CFO Howard
Smith for involvement in improper accounting transactions.

The transactions resulted in inflation of AIG’s reported financial
results between 2000 and 2005 and led to AIG agreeing to a
settlement of $1.64 billion with the SEC in 2006. Following a
review of its accounting practices AIG revised its reported net
income for the years 2000 to 2005, cutting profit by a total of
$3.4 billion. The revision involved about 66 transactions,
according to the SEC.

Specifically in the charges brought against Greenberg and Smith the
SEC alleged that they had been responsible for:

• Sham reinsurance transactions to make it appear that AIG had
legitimately increased its general loss reserves;

• A purported deal with an offshore shell entity to conceal
multimillion dollar underwriting losses from AIG’s auto-warranty
insurance business;

• Economically senseless round-trip transactions to report improper
gains in investment income; and

• The purported sale of tax exempt municipal bonds owned by AIG’s
subsidiaries to trusts that AIG controlled in order to improperly
recognise realised capital gains.

In response to the SEC’s allegations Greenberg agreed to settle the
charges and pay a penalty of $7.5 million and disgorgement of $7.5
million while Smith agreed to pay a penalty of $750,000 and parties
admitted to or denied the SEC’s allegations.

Commenting on the outcome of the SEC’s action against Greenberg and
Smith Robert Khuzami, director of the SEC’s Division of Enforcement
said: “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 AIG to claim success in meeting its
performance goals.”

Sign up for our daily news round-up!

Give your business an edge with our leading industry insights.

Sign up