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Greenberg pays $15M to settle SEC charges

Posted On: Aug. 9, 2009 12:00 AM CST

Greenberg pays $15M to settle SEC charges

WASHINGTON—Maurice R. Greenberg, American International Group Inc.'s former chief executive officer, has agreed to pay $15 million to settle civil charges related to alleged improper accounting transactions that inflated AIG's financial results, said the Securities and Exchange Commission.

In addition, ex-AIG Chief Financial Officer Howard I. Smith agreed to pay $1.5 million to settle similar charges.

The SEC last week announced the settlements to conclude a four-year investigation. Messrs. Greenberg and Smith, both of whom left AIG in 2005 amid investigations into the New York-based insurer's accounting practices, agreed to the settlements without admitting or denying guilt.

The SEC accused them of making misstatements that helped AIG falsely report results that met or exceeded earnings and growth targets, and were liable as “control persons” for AIG's security laws violations.

For Mr. Greenberg, the settlement terms could be viewed as a small personal victory, given that it does not prevent him from serving as an officer of a public company—a fairly common provision in SEC settlements, one legal expert said.

“I think Mr. Greenberg came out on top of the deal,” said Michael Cornaccia, a New York criminal defense attorney and former assistant U.S. attorney.

In addition, Mr. Cornaccia said the $15 million settlement, while “substantial,” is not “overwhelming” given that the legal fees to fight the charges could have been as much as three times that amount.

The charges “essentially say Mr. Greenberg ran the company that committed the fraud, but did not commit fraud himself,” said Peter Henning, a professor at Wayne State University Law School in Detroit.

Unlike Mr. Greenberg, Mr. Smith was charged with direct violations of securities laws, including antifraud provisions, and has been barred from acting as an officer or director of any public company for three years.

Boies, Schiller & Flexner L.L.P., which represents Mr. Greenberg, said in a statement that he was “pleased to finally put these issues behind him.”

In its complaint, the SEC said the two were involved in “numerous improper accounting transactions” that inflated AIG's earnings from 2000 to 2005, including a purported deal with an offshore shell entity to conceal multimillion-dollar underwriting losses from AIG's auto warranty business and “economically senseless” round-trip transactions to report improper gains in investment income.

In addition, the complaint alleged two reinsurance transactions that AIG entered into with a foreign subsidiary of Hartford, Conn.-based General Reinsurance Corp. to falsely inflate its loss reserves and premiums written.

In 2006, AIG agreed to pay $1.64 billion to settle fraud charges related to its practices with state and federal authorities. A spokesman for AIG declined comment.

Mr. Greenberg still is fighting civil fraud charges from the New York attorney general's office related to the accounting investigation.