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SEC, New York to Share AIG Fraud Payout

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SEC, New York to Share AIG Fraud Payout

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SEC, New York to Share AIG Fraud Payout

SEC, New York to Share AIG Fraud Payout

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Insurance giant American International Group will pay $1.64 billion to settle state and federal fraud charges. The settlement is one of the largest ever negotiated and will be split nearly evenly between the U.S. Securities and Exchange Commission and New York state.

MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel. One of the world's largest insurance companies, American International Group, has agreed to pay $1.6 billion to settle charges of securities fraud. The settlement is one of the largest any company has ever agreed to. It was announced today by state and federal regulators. The company has acknowledged that it entered into accounting transactions designed to mislead investors and regulators. NPR's Jim Zarroli reports:

JIM ZARROLI reporting:

AIG has long since acknowledged its phony accounting practices, tossed out its top managers, and begun cooperating with prosecutors. The only question left was how much it would have to pay to settle the case. Today the word came from the Securities and Exchange Commission and New York Attorney General Eliot Spitzer. AIG would have to pay penalties and fines totaling more than $1.6 billion, an amount that dwarfs other settlements, even in an age of big corporate scandals. Spitzer spoke to reporters today.

Mr. ELIOT SPITZER (Attorney General, New York): This is not a company that needed to cheat. This is a company that is strong, that is a vital part of our capital structure, and, unfortunately, a willful decision was made to misrepresent.

ZARROLI: Regulators say that under its legendary former chairman, Hank Greenberg, AIG entered into a series of deals designed to obscure its true financial picture. One took place in late 2000. At the time Wall Street analysts were beginning to question whether AIG's loss reserves were large enough, something that threatened to hurt the company's share price. Insurance industry analyst Donald Light of Celent Communications says AIG persuaded one of its clients, General Re Corporation, to enter into a complex reinsurance deal that was designed to artificially pump up its reserves. Light says General Re agreed to help.

Mr. DONALD LIGHT (Celent Communications): AIG was a very big and important customer of General Re. It was an accommodation to a very important customer.

ZARROLI: Last week, three former General Re executives and one from AIG were indicted for allegedly participating in the deal. General Re's involvement has raised eyebrows in great part because the company is owned by Warren Buffett's Berkshire Hathaway. Attorney General Spitzer said today that Buffett had cooperated with investigators.

Mr. SPITZER: His lawyers came in with a fair bit of information and laid out certain practices and transactions that they believed had not been necessarily proper. That was of great assistance, obviously. Prosecutors will make their own determinations about what that cooperation should or should not mean in terms of ultimate charge decisions.

ZARROLI: Regulators say AIG was involved with other illicit deals, too. They say AIG repeatedly used an offshore subsidiary called Union Excess Reinsurance Company to conceal financial problems from regulators and auditors. Under the settlement announced today, AIG agreed to take a number of steps to make sure it doesn't violate accounting regulations again and discloses its financial ties more clearly.

Mr. SPITZER: We want the transparency. We want people to play by the rules. It's nothing more complicated than that.

ZARROLI: Of the money paid by AIG, about $800 million will go into a fund to reimburse the company's investors. About $700 million will be divided between policyholders and individual states. One remaining question is what will happen to former chairman Greenberg, who was once a towering figure in the insurance industry? He's not covered by the settlement, and regulators are free to pursue a case against him. Greenberg has repeatedly denied any wrongdoing and has dismissed the case as politically motivated.

Jim Zarroli, NPR News, New York.

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