SEC Settles Suit With Former AIG Executives Greenburg, Smith
August 06 2009 - 11:27AM
Dow Jones News
Former American International Group (AIG) chief executive
Maurice "Hank" Greenberg and former chief financial officer Howard
Smith will pay penalties to settle civil allegations of accounting
fraud, the U.S. Securities and Exchange Commission said
Thursday.
The lawsuit, filed in a federal court in Manhattan, alleges the
men are liable for AIG's numerous accounting violations which
helped inflate the now-troubled insurance giant's financial results
between 2000 and 2005. Greenberg will pay $15 million in penalties
and disgorgement while Smith will pay $1.5 million. Both are
settling without admitting or denying the charges.
The SEC says the men should be held responsible for sham
reinsurance transactions which made it appear as though the company
had increased its general loss revenues. Reinsurance allows
insurance companies to completely or partly insure the risk they
have assumed for their customers.
Other improper accounting transactions the SEC claims took place
included a purported deal with an offshore shell entity to conceal
multi-million-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 wrongfully
recognize realized capital gains, the SEC 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," said Robert
Khuzami, the director of the SEC's Division of Enforcement.
"Greenberg and Smith oversaw various improper transactions that
presented a false financial picture and allowed AIG to claim
success in meeting its performance goals."
This latest lawsuit by the SEC comes a little more than three
years after AIG settled accounting charges with the SEC by agreeing
to pay disgorgement of $700 million and a penalty of $100
million.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com
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