Spitzer Files Civil Suit Against Greenberg and Smith
Former American International Group (AIG) CEO, Maurice “Hank” Greenberg and CFO Howard Smith are the targets of a civil suit filed by New York Attorney General Eliot Spitzer.
Spitzer’s suit is based on claims that the two defendants recorded fraudulent transactions in the company’s financial statements in an effort to mislead regulators and investors.
“The irony of this case is that AIG was a well-run and profitable company that didn’t need to cheat,” stated Spitzer. “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.”
AIG’s lawyers are currently getting ready to file the company’s annual report with the SEC. The report must be presented by next Tuesday. It has already been delayed 3 times. The company said that the fraudulent financial reporting will reduce its value by as much as $2.7 billion. MSN Money explains a little about the accusations:
Mr Greenberg and Mr Smith were personally involved in arranging two “sham” reinsurance transactions with General Re, a reinsurer controlled by Berkshire Hathway that inflated AIG’s reserves, the complaint alleges.
Another was that the defendants allegedly hid losses from AIG’s underwriting business by converting underwriting losses to capital losses.
In a third alleged offence, the pair falsely reported the income from the purchase of life insurance policies as underwriting income.
“The AIGs of the world don’t want to get bogged down in a lawsuit with the attorney general of New York or the SEC for that matter,” said former federal prosecutor Jacob Frenkel. “But for an individual of Mr. Greenberg’s stature, the outcome of this case follows him for the rest of his life, which may make the desire for vindication greater.”
AIG shares went up 3% yesterday and today added another $1.02, or 1.8% reaching $56.73. The shares are the highest they have been since the end of March.