Spitzer charges AIG, Greenberg with fraudPosted On: May. 26, 2005 12:00 AM CST
NEW YORKAmerican International Group Inc. and two former top executives engaged in fraudulent transactions designed to exaggerate the insurer's financial results and pump up its stock price, according to a civil lawsuit filed Thursday by New York Attorney General Eliot Spitzer and the state's insurance department.
The lawsuit, which charges fraud at the company dating back to the 1980s, names as a defendants AIG, former Chairman and Chief Executive Officer Maurice R. Greenberg and former Chief Financial Officer Howard I. Smith. The complaint was filed in state Supreme Court in Manhattan.
The lawsuit attributes much of the wrongdoing to Mr. Greenberg, citing e-mails and other evidence allegedly showing that he was personally involved in negotiating some of the fraudulent transactions and that he directed other AIG employees to develop and implement the schemes underlying those deals.
Specifically, the suit charges that the company and its top management:
According to the suit, the defendants routinely engaged in misleading accounting and financial reporting between the 1980s, if not earlier, and Mr. Greenberg's departure earlier this year.
The suit also cites a separate scheme in which AIG improperly booked workers compensation premiums as general liability and other insurance to reduce the company's tax liability and state workers compensation fund assessments.
The suit alleges violations of New York's Martin Act, Executive Law and Insurance Law, in addition to common law fraud. In addition to injunctive relief, the suit seeks damages and disgorgement of profits from the illegal transactions.
"The irony of this case is that AIG was a well-run and profitable company that didn't need to cheat," said Mr. Spitzer in a statement. "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."
New York Insurance Superintendent Howard Mills said: "The charges against AIG and two of its former executives are serious ones, and the complaint includes compelling evidence that investors and regulators were misled over an extended period of time. Having said that, however, I believe AIG is taking steps to restore the company's credibility."
AIG has admitted many of the allegedly fraudulent transactions cited in the lawsuit and has terminated certain implicated personnel. The company also has announced plans to restate its earnings and said that it has been cooperating with authorities.
Attorneys for Messrs. Greenberg and Smith, who were both ousted from the company earlier this year, were unavailable for comment.
In a statement, AIG said: "We have reviewed the complaint.... We have been cooperating and will continue to cooperate with the Attorney General, the Superintendent, and otherregulatory agencies on all these matters. There are no new claims raised inthe complaint. We are pleased that Attorney General Spitzer has recognizedour cooperation and has previously indicated his expectations of reaching acivil settlement with AIG."