FOR IMMEDIATE RELEASE
STATE SUIT CITES PATTERN OF FRAUD AT AIG
Former CEO Hank Greenberg Directed and Approved Illegal Transactions
Attorney General Eliot Spitzer and State Insurance Superintendent Howard Mills today announced a lawsuit against the nations largest business insurance company, alleging that the firm manipulated its books to deceive regulators and the investing public.
The lawsuit alleges that American International Groups (AIG) former top management, including former Chairman Maurice R. Greenberg and former Chief Financial Officer Howard I. Smith, engaged in numerous fraudulent business transactions that exaggerated the strength of the companys core underwriting business to prop up its stock price.
"The irony of this case is that AIG was a well-run and profitable company that didnt 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 companys financial results."
Superintendent 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 companys credibility."
The lawsuit, filed today in State Supreme Court in Manhattan, attributes the misconduct at AIG directly to Greenberg. The suit cites e-mails and other evidence showing that Greenberg was personally involved in negotiating some of the fraudulent transactions, and that he directed other AIG staffers to develop and implement the schemes underlying other misleading transactions.
Specifically, the company and top management:
Engaged in sham transactions with a reinsurance company to create the appearance of insurance reserves where none existed. These deals were personally conceived and negotiated by Greenberg;
Hid underwriting losses from an auto warranty unit by transferring the losses to an off-shore entity that it secretly controlled;
Papered over losses in a Brazilian subsidiary by linking the losses to a Taiwanese subsidiary;
Created false underwriting income derived from the purchase of life insurance policies; and
Repeatedly deceived state regulators about AIGs ties to off-shore entities.
The suit also cites a separate scheme in which AIG improperly booked workers compensation premiums as general liability and other coverage. This misconduct reduced the companys taxes and other assessments.
AIG has already admitted that many of the transactions were improper, has terminated certain implicated personnel, and has announced plans to restate its earnings. The company is cooperating with authorities.
The suit alleges violations of New Yorks Martin Act, Executive Law and Insurance Law, plus common law fraud. In addition to injunctive relief, the suit seeks damages and disgorgement of profits from the illegal transactions.
The investigation is continuing.
Contacts: AGs Office: Marc Violette 518-473-5525
NYS ID: Mike Barry 212-480-5262
Attachments (Note: the below documents are in PDF Format)
Summons and Complaint