AIG Agrees to Settle SEC Fraud Allegations

American International Group Inc., one of the biggest U.S. insurance companies, agreed Thursday to pay a $10-million civil fine to settle federal regulators’ allegations that it fraudulently helped another company falsify its earnings report and hide losses.

The insurer, known as AIG, also failed to provide documents that were subpoenaed during the government’s investigation of the alleged fraud involving financial reports by cellular phone distributor Brightpoint Inc., the Securities and Exchange Commission said.

New York-based AIG neither admitted nor denied the SEC’s allegations in its settlement, in which it also is forfeiting a $100,000 fee paid by Brightpoint.

The SEC also charged Brightpoint, which agreed to pay a $450,000 civil fine, as well as three former Brightpoint executives and an assistant vice president of AIG. Three of the individuals settled the cases and agreed to pay civil fines of as much as $100,000. Brightpoint and the three individuals neither admitted nor denied wrongdoing.

The SEC alleged that AIG issued a so-called nontraditional insurance policy to Brightpoint, a Plainfield, Ind.-based distributor of wireless phones for companies including Nokia, Sony, Ericsson and Virgin, to help the company hide $11.9 million in losses in 1998. The insurance policy was said to be for Brightpoint to smooth out volatility in earnings.

AIG agreed to make it appear that Brightpoint was paying premiums in return for AIG assuming risk, but Brightpoint actually was just depositing cash with AIG that it later refunded to Brightpoint, the SEC said.

The ruse, a “round-trip” of money between the two companies disguised as insurance, enabled Brightpoint to overstate its earnings by 61% and to spread over several years a loss that should have been reported immediately, according to the SEC.

AIG said it “acknowledges that mistakes were made in the underwriting of this policy.”

In late 2001, Brightpoint restated its earnings for the previous 3 1/2 years. That led to shareholder lawsuits against the company.

Jerre Stead, lead independent director of Brightpoint, said the settlement would enable Brightpoint’s management “to focus on the company’s core business, and represents the final step in resolving all stockholder and regulatory matters relating to the 1998 purchase of the purported insurance policy.”

Shares of AIG fell 43 cents to $60.15 on the New York Stock Exchange. Brightpoint rose $1.58 to $27.45 on Nasdaq.