AIG, Former Executives Face Suit Alleging Fraud
New York Atty. Gen. Eliot Spitzer on Thursday filed a civil suit against American International Group Inc., accusing the nation’s largest insurance company and two former top executives of using “deception and fraud” to boost the company’s stock price.
The suit filed in state Supreme Court in Manhattan accused AIG’s former chief executive, Maurice “Hank” Greenberg, and former chief financial officer, Howard I. Smith, of orchestrating an accounting scheme that made AIG’s financial picture appear brighter than it was, misleading both investors and state regulators.
“The irony of this case is that AIG was a well-run and profitable company that didn’t need to cheat,” Spitzer said.
“And yet, the former top management routinely and persistently resorted to deception and fraud in an apparent effort to improve the company’s financial results,” he said.
The 37-page suit accuses AIG of employing a variety of questionable accounting devices. The suit said, for example, that AIG “engaged in at least two sham insurance transactions” to give the impression its reserves were higher than they were.
It said Greenberg “personally proposed and negotiated” the deals with General Reinsurance Corp., a unit of billionaire investor Warren E. Buffett’s holding company Berkshire Hathaway Inc. Buffett has said he was not directly involved in the transaction, and the suit says the deal was worked out between Greenberg and Gen Re’s former chief executive.
The suit also alleges that AIG concealed losses from insurance underwriting through offshore shell companies; mischaracterized income from the purchase of life insurance policies; and repeatedly lied to state insurance regulators about its ties to offshore companies.
The suit suggests that Greenberg and Smith manipulated the stock for their own financial benefit.
“Greenberg and Smith ... both held hundreds of thousands of shares of AIG stock. For example, the value of Greenberg’s holdings increased or decreased approximately $65 million for every dollar AIG stock moved,” the civil suit claimed.
Greenberg’s attorney, David Boies, didn’t immediately respond to a request for comment and Smith couldn’t be reached for comment.
AIG spokesman Joe Norton said that AIG -- now operating under new management -- was continuing to cooperate with investigators.
“There are no new claims raised in the complaint,” Norton said. “We are pleased that Atty. Gen. Spitzer has recognized our cooperation and has previously indicated his expectations of reaching a civil settlement with AIG.”
AIG shares rose $1.63, or 3%, to $55.71.
Meanwhile, a grand jury is probing potentially criminal conduct by individuals at AIG, including former top management, according to sources quoted in the New York Times and the Wall Street Journal.
Spitzer and his staff have refused to confirm or deny that a grand jury is dealing with the case.
Greenberg, 80, resigned as chief executive and chairman of AIG in March, ending nearly 40 years at the helm of the insurance company. Smith was fired about a week later for failing to cooperate with investigators.
