Settlement to Cost AIG $1.64 Billion
American International Group Inc., the world’s largest insurer by market value, agreed Thursday to pay $1.64 billion to settle federal and state charges of fraud, bid rigging and improper accounting.
The widely anticipated agreement ends a long-running investigation of the company by New York Atty. Gen. Eliot Spitzer and New York Insurance Supt. Howard Mills, along with federal authorities led by the Securities and Exchange Commission.
But it does not resolve pending cases against former AIG Chief Executive Maurice “Hank” Greenberg and former Chief Financial Officer Howard Smith, who were forced out last spring, two months before charges were announced against the New York company.
In settling, Spitzer pointed the finger directly at Greenberg and Smith, who have denied that they did anything wrong.
“There are some who continue to deny there was any wrongdoing at the company,” Spitzer said in an interview. “I think the facts laid out today are overwhelming in establishing that from the highest levels of AIG there was an intent to misrepresent the financial condition of the company.”
However, the attorney general made a point of saying new management at AIG had done a spectacular job, cooperating with the investigation and putting in reforms.
“We are happy about the resolution of the case,” he said.
Representatives of Greenberg and Smith could not be reached for comment.
The AIG agreement is the largest regulatory settlement by a company in U.S. history, according to the SEC and Spitzer’s office.
The second-largest is insurance broker Marsh & McLennan Cos.’ $850-million payment in connection with the same investigation a little more than a year ago.
AIG said it would take a fourth-quarter after-tax charge of about $1.15 billion for its settlement.
AIG’s penalties will reduce the company’s book value by less than 2%, said Andrew Kligerman, an insurance analyst at UBS.
AIG shares rose 74 cents to $67.12.
Under the terms of the settlement, AIG will pay $700 million into a fund to aid investors deceived by its false financial statements. An SEC penalty of $100 million also will go into that fund. AIG policyholders harmed by bid rigging will receive $375 million.
An additional $344 million will go to states harmed by AIG’s practices of understating workers’ compensation premiums. And $100 million will go to the state of New York, whose insurance department filed the original suit against AIG in May. The Justice Department will get $25 million.
