New York Lawsuit Targets AIG Executives for Fraud
MELISSA BLOCK, host:
The state of New York today filed a civil suit against the giant insurance firm American International Group. The state says AIG engaged in deception and fraud to prop up the company's stock price. The company's former chief executive officer, Hank Greenberg, and former chief financial officer, Howard Smith, were also charged. The complaint says that Greenberg, a legendary figure in the insurance world, was at the center of several of the schemes that took place at the company. NPR's Jim Zarroli reports.
JIM ZARROLI reporting:
This was the first time any charges were filed in connection with the AIG investigation, which was spearheaded by New York Attorney General Eliot Spitzer and Insurance Commissioner Howard Mills. In a press release, Spitzer said the irony of the case was that AIG was a profitable and well-run company that didn't need to cheat. And yet, he said, top management routinely and persistently resorted to deception and fraud to make AIG's finances look better.
The complaint provides some new details about a transaction involving General Re, a reinsurance company owned by Warren Buffett's Berkshire Hathaway. It says that in October 2000, Greenberg learned that some Wall Street analysts were worried about the level of AIG's financial reserves. Donald Light is an analyst at the consulting firm Celent Communications.
Mr. DONALD LIGHT (Celent Communications): The very next day, he started to develop his arrangement, the so-called reinsurance transaction with General Re. And the effect of that transaction was to make the reserve position at AIG appear stronger than it was in reality.
ZARROLI: The complaint says Greenberg wanted to conceal the low reserves at AIG because he owned lots of stock in the company and was worried it would lose value if investors knew the truth.
The complaint also details several other alleged efforts to manipulate AIG's books. In one case, AIG racked up about $200 million in auto warranty losses. To conceal the problem, officials arranged to transfer the losses to an offshore entity, where they'd be harder to find, and set them up as investment losses. The complaint says that when CFO Smith set up the deal, he wrote to one of his colleagues, `Discussion of this deal should be limited to as few people as possible.'
And in another instance, the complaint said, AIG allegedly tried to paper over losses in one of its Brazilian subsidiaries by linking them to another part of the company. Officials stopped short of filing criminal charges against AIG, which has been cooperating with authorities over the last several months. Again, Donald Light.
Mr. LIGHT: Now they'll be taken to the woodshed, they'll be administered a very sound spanking, but it's no worse than that.
ZARROLI: Officials refrained from filing criminal charges against either Greenberg or Smith, but left open the possibility that US officials could do so. The Justice Department is investigating AIG. Greenberg's lawyers said they were reviewing the charges and would vigorously defend him against fraud accusations. Smith's lawyer said he looked forward to a case to refute the allegations in court, and AIG said it would continue cooperating with authorities. Jim Zarroli, NPR News.
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