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USAGold compiles Fed Chairman Greenspan''s exchanges with Rep. Ron Paul
NY AG Spitzer Files Suit Against AIG,
Says Fraud Was Used to Boost Stock Price
By Michael Gormley
Associated Press
Thursday, May 26, 2005
http://biz.yahoo.com/ap/050526/aig_probe.html?.v=12
ALBANY, N.Y. -- New York Attorney General 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."
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 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 from 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 Attorney General 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 percent, to close at $55.71 on the New
York Stock Exchange. They are still well below the high end of the
52-week range of $49.91 to $74.98.
Kathleen Shanley, an analyst with Gimme Credit, an independent bond
research firm in Chicago, said investors may have reacted positively
because "although serious issues were raised, most of them have
already been identified by the company in their own filings."
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 officer 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.
Called to testify last month before Spitzer's staff, representatives
from the Securities and Exchange Commission and lawyers from the New
York state insurance department, Greenberg claimed his Fifth
Amendment rights against self-incrimination, saying he had not been
given access to AIG documents he needed for his defense.
State Insurance Superintendent Howard Mills said that the
complaint "includes compelling evidence that investors and
regulators were misled over an extended period of time."
He added: "Having said that, however, I believe AIG's current
management team has taken steps to restore the company's
credibility."
The suit says Greenberg repeatedly directed AIG traders to buy AIG
stock to prop up its price, once after losses from a natural
disasters and again after the company was served with a subpoena.
"I don't want the stock below $66 so keep buying," Greenberg told a
trader, according to the suit that cites e-mails and testimony. "I
wanna push it up a little bit if we can."
In 1989, two employees said they warned top AIG officials that a
practice of shifting the accounting of premiums from worker's
compensation -- where a state assessment was charged -- to general
or auto policies was illegal, according to the lawsuit.
A note from the general counsel stated an employee went to "MRG,"
referring to Greenberg. The employee said he was told Greenberg "did
not want him to change things to make it legal -- he wants to
continue as is."
Another interview witness quoted his notes from a meeting with
Greenberg: "`Are we legal?'" Greenberg asked. "When an employee
responded, `If we were legal, we wouldn't be in business,' then `MRG
began laughing and that was the end of it.'"
Greenberg was replaced as CEO by Martin J. Sullivan, 50, who had
served as vice chairman and co-chief operating officer. When named
in mid-March to the post, he became just the third man to hold the
post since AIG's founding in 1919.
Sullivan and his new management team have been working to prepare
the company's annual report for 2004 and make previously announced
accounting adjustments that will cut AIG's value by some $2.7
billion. The report is expected to be released Tuesday.
AIG is also accused of understating losses from an automobile
warranty unit by transferring the losses to an offshore subsidiary.
"Company officials repeatedly lied to state regulators about AIG's
ties to this and other offshore entities," according to Spitzer's
statement.
The company is also accused of covering up losses in a Brazilian
subsidiary by linking those losses to a Taiwan-based subsidiary that
had been hit by damage claims from a typhoon and of creating "false
underwriting income" through transactions to buy life insurance
policies from dying people, Spitzer stated.
The state officials also accuse the company of fraudulently reducing
its tax liability.
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