American International Group (AIG)

Last edited by Charlie Cray on October 1, 2009 - 7:15pm

Company Snapshot:

Before it collapsed, AIG, as measured by asset value, was the largest insurer in the world. But in September 2008, after its credit rating went down, AIG was caught without enough collateral for the credit default swaps it had sold to banks around the world, and was forced to accept a massive federal bailout package in order to forestall a collapse. As the size of the company's debts have grown, the U.S. government has readjusted the terms of the bailout, and gradually begun to take over parts of the company. A confidential AIG memo leaked to the press warns of systemic risk if AIG collapses, and pegged the notional value of its derivatives exposures at $1.6 trillion.

Number of employees worldwide:

116,000 (2007)

Chief executive officer:

Edward M. Liddy (since 9/17/08)

Website:

AIG

Global Fortune 500 rank:

Not ranked (9th in 2005)

Tel:

+1-908-679-3150

Net Income:

$ US 8.9 billion

Total revenue:

$ US 110 billion

Corporate accountability

Accountability overview:

AIG's recent troubles started in the mid-2000s, when it was the target of a series of fraud investigations that ultimately led to the forced resignation of Maurice Greenberg, the company's CEO and chairman for nearly 20 years.

An investigation initiated by New York's attorney general eventually resulted in a $1.6 billion fine ($1.15 after taxes) for AIG, and in criminal charges for some of its executives. The February 9, 2006 settlement resolved allegations that AIG. had participated in bid-rigging schemes and paid insurance brokers to steer business its way, used fraudulent insurance transactions to bolster the quality and quantity of its earnings and underreported to state insurance departments the amounts of workers' compensation premiums it had collected, on which it owed taxes. In 2005, it restated its financial results for five years beginning in 2000, a period when improper accounting inflated the company's earnings by more than $3 billion. (Gretchen Morgenson, "A.I.G. Apologizes and Agrees to a $1.64 Billion Settlement," New York Times, 2/10/2006).

Greenberg's successor, Martin Sullivan, was forced to resign on June 15, 2008, after the company's stock began plunging on news of the company financial losses. On September 17, 2008, Sullivan's successor Robert B. Willumstad, who had chaired the board of directors since 2006, was quickly forced to step down. As one condition of a federal bailout of the firm, Edward M. Liddy replaced him.

By the end of 2008, AIG had borrowed at least $127.7 billion -- or 84% of the $152 billion the Federal Reserve had allotted to the company. (David Goldman, "AIG Bailout $127.7B and counting," CNNMoney.com, 12/30/2008) Analysts say the company plans to sell as many assets as it can to pay off the loans.

The federal government demanded a nearly 80% share of the company in exchange for high-interest loans. It also insisted on the firing of the company’s CEO (even though he had only been on the job for three months).

Although most of AIG's businesses were widely considered to be sound, the cancer that caused the company to collapse was initially located in a 500-person unit called AIG Financial Products, where a handful of traders reportedly sold trillions of dollars of credit-default swaps (essentially unregulated insurance policies) on piles of U.S. subprime mortgages. Companies contracted with AIGFP to provide insurance on a wide range of securities. Under the policy, if a bond didn’t pay, AIG would make up the loss.

The trouble began when AIG's Financial Products' London unit decided to insure “collateralized debt obligations” (CDOs -- pools of risky mortgage loans). The ratings agencies had initially graded many of these CDOs as highest quality, thereby allowing AIG to treat them as low risk bets for which it did not have to set aside much collateral. ). In 2008 as the housing bubble popped, the ratings began to be downgraded, and the company's collateral requirements rose rapidly.

AIGFP's London office did not have to abide by American insurance reserve requirements. Thus, derivative clerks and salespeople in London could sell as many products as they could write, without having to worry about the consequences. According to a Village Voice investigation the president of AIGF, "a tyrannical supersalesman named Joseph Cassano ... was an executive at Drexel Burnham Lambert" during the 1980s. Drexel was the brokerage firm where Michael Milken engineered the junk bond crisis. Cassano followed the lead of Howard Sosin, a former DBL trader who (as Michael Lewis later reported) "claimed to have a better model" for trading interest rate swaps. Sosin left AIG in 1993, taking $182 million with him.

Traders at AIGFP kept 30 to 35 percent of the profits (versus the 20 percent that is typical for hedge funds) without having to spend time raising money to post as collateral. (AIG traders had essentially unlimited capital on tap from the parent company.) After Sosin left, Tom Savage took over as CEO, with Cassano as deputy. Former traders described Cassano as a control freak and "bully" whose "judgment was clouded by his insecurity." Although AIG's rating dropped from AAA to AA the day after Hank Greenberg was forced to resign, Cassano continued to grow the company's business. According to one employee, by then the company's consumer loan piles were 95 percent U.S. subprime mortgages, and once they realized it, "AIGFP executives ... were shocked by how little actual thought or analysis seemed to underpin the subprime-mortgage machine: it was simply a bet that U.S. home prices would never fall." Shortly after 2005, Cassano and AIG decided it would no longer shoulder the risk for other banks, and the big Wall Street firms "solved the problem by taking the risk themselves," thereby keeping the "machine" going another two years.

Revenue from premiums for derivatives at AIGFP rose from $737 million in 1999 to $3.26 billion in 2005. "Cassano reportedly hectored ever-willing counterparties to "play the power game" -- in other words, gobble up all the credit derivatives backing CDOs that they could grab." (The Voice also reported that Cassano has retained ace white-collar crime attorney F. Joseph Warin.)

Although AIG executives had assured investors that AIG’s operations were nearly fail safe, when the housing market collapsed AIG suddenly found itself unable to raise enough money to cover its rapidly growing collateral obligations. After the company suddenly found itself teetering on the edge of bankruptcy, with no private investors willing to come to its aid, government officials quickly intervened, fearing that an AIG bankruptcy would cause the world’s financial system to collapse.

After the first bailout, it was revealed that AIG did not even know all of the CDOs it had insured. According to the Washington Post, Gerry Pasciucco, the Morgan Stanley vice chair hired to close the division, estimated that it had $2.7 trillion worth of swap contracts and positions, 50,000 outstanding trades, and 2,000 counterparties (firms involved on the other side of those trades).

At the end of December 2008, the Washington Post published a three-part, in-depth investigation into AIG Financial Products that explained the history of AIG Financial Products and the critical role it played in the company's downfall. (See Part One: "The Beautiful Machine", Part Two: "A Crack in the System" and Part Three: "Downgrades and Downfall")

A telling Excerpt:

"Financial Products unleashed techniques that others on Wall Street rushed to emulate, creating vast, interlocking deals that bound together financial institutions in ways that no one fully understood and contributed to the demise of its parent company as a private enterprise. ... The bailout stands at $152 billion and counting -- almost 10 times as large as the rescue for the American auto industry...Many of the most compelling aspects of the economic cataclysm can be seen through the story of AIG and its Financial Products unit: the failure of credit-rating firms, the absence of meaningful federal regulation, the mistaken belief that private contracts did not pose systemic risk, the veneration of computer models and quantitative analysis."

On March 1, 2009, Baseline Scenario updated its AIG bailout timeline.

In short:
September 16: The Federal Reserve gave AIG an $85 billion line of credit at a high interest rate in exchange for warrants on 79.9% of AIG's stock.
October 8: The Federal Reserve authorized the NY Fed to "borrow" $37.8 billion in "illiquid" securities from AIG in exchange for the equivalent amount of cash.
November 10: Treasury invested $40 billion of TARP money in AIG for preferred stock paying a 10% dividend. Some of this was used to pay back the Fed's high-interest line of credit, now reduced to $60 billion. The same day, the Fed created AIG RMBS LLC with a $19.8 billion loan and $1 billion from AIG. The money was used to buy residential mortgage-backed securities from AIG. Under the terms outline by the Fed, AIG will take the first $1 billion in losses. The money paid by the Fed for the securities was used to reduce the earlier NY Fed loan. In a similar manner, the NYFed created AIG CDO LLC with $5 billion from AIG and a $30 billion loan from the fed, to buy collateralized debt obligations from third parties that had purchased "insurance" (i.e., credit default swaps) from AIG.
March 2: Treasury announces that the $40 billion in shares will be converted to a class where they are not required to pay a dividend. Treasury also promises $30 billion more in cash in exchange for a third (Series F) class of stock. In addition, AIG puts two life insurance subsidiaries -- that it presumably couldn't sell on the open market -- into separate trusts for the Fed to purchase, with the money going to pay down the earlier credit line. In addition, AIG will securitize certain life insurance policies, and sell those to the Fed for $8.5 billion. In addition, AIG will get better terms on the first $40 billion in preferred stock.

Why not let AIG fail instead of continuing to fiddle with the terms of the bailout? Those who have looked at the situation closely seem to all agree that the US Government cannot let AIG fail because of fear that it would be the first domino to collapse in the globalized financial system. Why? Because a huge part of the company's credit-default swap business was devised to allow banks to make their balance sheets look better than they were. (Unlike many of the Wall Street investment banks, AIG didn't specialize in converting subprime mortgages into pooled securities. Instead, it sold credit-default swaps, which acted as a form of insurance for those securities. And because credit-default swaps were not regulated (for a variety of reasons, including the fact that there is no federal insurance regulator), AIG did not have to put any capital aside in reserve, as long as it maintained its AAA rating.

Specifically, AIG sold credit default swaps (CDS) to banks in the European Monetary Union (EMU), where banks used them to exceed their balance sheet reserve (leverage) requirements. Without the CDS, it's likely that many large EMU banks would be insolvent, leading to a massive meltdown. AIG is therefore considered by many to be a keystone to the world's financial structure. The systemic risk presented by AIG's failure explains why it keeps getting propped up.

“There isn’t a great deal of confidence we can take AIG’s word at face value,” Bill Bergman, an analyst at Morningstar Inc told Bloomberg. “AIG shares trading this close to zero suggest there are real losses out there, and if there’s no value for shareholders, taxpayers may be taking some very significant losses.” (Hugh Son, "Liddy Pleads for Forgiveness as AIG Rescue Unravels," Bloomberg, February 26, 2009).

As of March 2009, the company had so far refused to disclose the counterparties that economists, including Nouriel Roubini, have suggested are the real recipients of the bail out, and government spokespeople have suggested that the Trade Secrets Act prevents them from revealing that information. (See Joe Nocera, "Who's Really Being Propped Up in the A.I.G. Bailout?," NYTimes, 3/2/2009)

According to an investigation published by Michael Lewis Vanity Fair, 8/09, insiders at AIG Financial Products had very different perceptions of what went wrong than that portrayed by the media. E.g., AIG's problems were "clearly broader" than the credit default swaps sold by traders at AIGFP. For instance, the mortgage-insurance unit in North Carolina (United Guaranty) "had taken on all sorts of silly risks in the past two years, lost several billion dollars, and replaced their CEO. There were the fund managers at AIG, the parent company, who had blown nearly $50 billion on trades in subprime mortgages...there was a pattern: all of this stuff had happened since 2005, after an accounting scandal forced CEO Maurice "Hank" Greenberg to resign." Because Greenberg had basically built the company, after he was forced out new management (in his view) wanted to continue to grow and so turned a blind eye to all sorts of risks.

After the story broke that A.I.G. Financial Products had shelled out $450 million in bonuses, President Obama announced that he was looking for a way to get the money back. Then A.I.G.'s new CEO Ed Liddy went to Washington to testify before Congress. After that, A.I.G.F.P. employee Jake DeSantis published his letter of resignation (sent to Liddy) in the New York Times, which explained that most of the employees receiving the bonuses "had nothing to do with the large losses."

Weak Oversight at the SEC

Apart from the credit default swaps that it sold to banks, AIG also sold a financial instrument called 2a-7 puts that allowed money market funds to invest in risky bonds instead of in the safest commercial paper. AIG agreed to buy back the bonds if they went bad. The SEC approved the arrangement, according to the NY Times' Joe Nocera.

Tax issues:

A former Senate staff aide wrote in the L.A. Times: "My sleaziest encounter with a lobbyist occurred in my Finance Committee office. One lobbyist, whom I did not know, somehow got 15 minutes on my schedule to describe the unbearable suffering AIG was being forced to endure by some corporate tax provision or other that he wanted to get repealed or amended or some such. I feigned interest, nodded a lot, maybe let a hint of sympathy into my eyes, and said nothing. If he told his masters that I was anything other than noncommittal, he was lying. ...The next day one of my assistants rushed into the office. She had just opened an envelope addressed to me, and was shaking as she handed it to me. It was from AIG's lobbyist -- a letter thanking me for the meeting and a check made out to my boss' reelection campaign. ... I hand wrote a harshly worded version of "How dare you?" on the lobbyist's letter and sent it back to him with the check." (Lawrence O'Donnell Jr., "Good lobbyists, good government," Los Angeles Times 1/13/2006)

On March 23, 2005 the New York Times reported that federal and state insurance regulators were investigating AIG's use of offshore tax haven subsidiaries to manipulate its own books to reduce its liabilities. AIG treated two companies -- Richmond Insurance and Union Excess Reinsurance, reinsurers that, according to regulatory filings, do business solely with A.I.G. -- as separate entities, as a way to offload some of its own financial risk. Two top executives - Howard Smith, the chief financial officer, and Christian Milton, the vice president for reinsurance - were both dismissed for refusing to cooperate with regulators investigating a transaction between A.I.G. and General Re. (Lynnely Browning, "Investigation of A.I.G.'s Deals Moves Offshore," New York Times, 3/23/2005).

Tax Justice Network investigator Lucy Komisar reports that AIG operated a scam that allowed its clients to cheat on their taxes by offering off-shore reinsurance policies and "management facilities to run the captives in offshore Barbados, Bermuda, Cayman Islands, Gibraltar, Guernsey, Isle of Man, and Luxembourg -- where corporate and accounting records are secret and taxes minimal or nonexistent." Greenberg's son, Evan, was the head of Ace Ltd., a Bermuda insurer.

Environment and product safety:

AIG has been a vocal supporter of the Superfund tax, and has opposed efforts to weaken the Superfund bill if it doesn't contain such provisions.

Anti-competitive and consumer protection:

Under Maurice Greenberg, AIG was active in the campaign for "tort reform" --i.e. attacks on the rights of American citizens to seek redress through the courts. "The battle for tort reform must be fought state by state," Greenberg told one industry gathering, suggesting that insurers would refrain from investing in states that had not restricted access to civil justice. "AIG is participating in a campaign that is publishing newspaper advertisements highlighting the states with the worst tort systems." (David Casey, Jr., "Perspectives from the front lines," Association of Trial Lawyers of America, 11/1/2003).

Political influence (national and international):

Post-Bailout Lobbying

On October 10, 2008, Propublica reported that after the government took an 80% stake in AIG, the company nevertheless continued to spend money to lobby states against new controls on the mortgage industry. (Fannie Mae and Freddie Mac, by comparison, shut down their lobbying operations immediately after being taken over).

The Village Voice reported that "the day before AIG reaped its initial $85 billion bonanza, (then Treasury secretary Hank) Paulson met with his [Goldman Sachs] successor, Lloyd Blankfein, who reportedly argued that Goldman would lose $20 billion and fail unless AIG was rescued."

Other SEC Enforcement Matters

On July 9, 2007, the SEC announced a favorable jury verdict against former Brightpoint executives who allegedly executed a sham insurance policy issued by AIG that was designed to allow Brightpoint to write off losses as covered by insurance. The complaint alleged that the policy masked a round trip of cash between Brightpoint and AIG, rather than real insurance. As a result of the scheme, Brightpoint's pre-tax net income for 1998 was overstated by 61%. (For the original litigation release, see http://www.sec.gov/litigation/litreleases/lr18340.htm.)

On November 30, 2004, AIG agreed to pay $126,366,000 (including disgorgement and penalties) to settle SEC charges that it facilitated fraud at PNC Financial Services Group Inc., aiding and abetting violations of reporting and record-keeping provisions of those laws. AIG's wholly owned subsidiary AIG Financial Products Corp. allegedly offered to create a special purpose entity (SPE) for its clients, where they could transfer troubled or other potentially volatile assets, thereby keeping them off their books. The same day, the Fraud Section of the Criminal Division of the Department of Justice announced that it had reached a deferred prosecution agreement for criminal charges against AIG and two of its subsidiaries.

On April 5, 2006, FINRA fined AIG affiliate American General Securities more than $1.1 million for brokerage violations.

On June 8, 2005, FINRA fined six AIG subsidiaries a total of $12,730,000 for brokerage-related violations.

In September 2007, AIG Financial Advisors Inc. (Arizona) agreed to pay a $15,000 fine associated with allegations that it allowed a prohibited individual to be affiliated with the firm.

Offshore Scams

AIG formed Coral Re in the offshore jurisdiction of Barbados during the 1980s, in order to park its subsidiaries' uncollectible reinsurance balances, thereby helping those units avoid charges. At the time, AIG claimed Coral Re was not an affiliate, even though AIG managed the reinsurer, and sold its stock to prominent U.S. businessmen. Coral Re later ceded its contracts to Gen Re's Cologne Re Dublin unit, and in 2000, the Dublin company's CEO, John Houldsworth, included the business in a deal with AIG that is now at the center of a large criminal case. (See Douglas McLeod, "Ghost of Coral Re returns in Gen Re fraud trial," Business Insurance, 2/18/2008)

CrocTail subsidiary information

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croctail_subsidiary_panel:

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History

"AIG's roots went back to 1919 and Shanghai, where founder Cornelius V. Starr built a business around a lucrative, relatively untapped insurance market. Starr's company later received an unorthodox boost when he worked with the U.S. Office of Strategic Services during World War II to create an intelligence unit that gleaned information from insurance documents." (Robert O'Harrow, "The Beautiful Machine," Washington Post, December 29, 2008).

Starr's successor, AIG former CEO Maurice Greenberg was a close confidante of former CIA director William J. Casey, who also worked for the OSS during WW II. Greenberg was himself under consideration for the CIA director post during Clinton's first term. According to journalist Wayne Madsen, AIG has been at the center of a number of CIA operations for decades. ("AIG is a 'special case'," Wayne Madsen Report, 9/23/2008)

In The Shadow Warriors: OSS and the Origins of the CIA (Basic Books, 1983) author Bradley F. Smith shed more light on Cornelius Starr and the OSS: "It [a secret intelligence operation in China] was formed in April 1942, when [Bill] Donovan persuaded British insurance magnate C.V. Starr to let C.O.I. (Covert Operations Intelligence) use his commercial and insurance connections in occupied China and Formosa to create a deep cover intelligence network. Although the State Department was nervous about the operation, Donovan went ahead and, with the cooperation of the U.S. Army, bypassed the diplomats in operating the communications system. ...the Starr-Donovan connection worked in China at least until the winter of 1943-44."

Starr quickly added representation of other U.S. companies to his operations, and formed Asia Life Insurance Co. (ALICO) after being unable to find U.S. companies willing to assume the risk of offering life insurance, since there were no life-expectancy statistics available for the Chinese population. He opened an office in NYC in 1926.

In 1939 Starr moved his HQ's to New York, temporarily closing the Shanghai office owing to increasing political turmoil in Shanghai and around the world. The office was reopened after WW II.

1947: Starr reorganized the firm to revive war-torn operations and prepare for growth. A Philippine branch was opened, with Earl Carroll as head.

1948: The Asian firm was renamed AIA, and based in Hong Kong, covering Malaysia, Singapore, and Thailand. Starr started to united his network of insurance companies with the creation of two Bermuda-based entities: American International Underwriters Overseas (AIUO), the parent company of all American International Underwriters companies. AIU provided for pooled business in stipulated percentages and shared assets that were kept overseas to meet local regulatory requirements.

1950: AIU closed its operations in China and opened new ones in Japan and German (to sell insurance to occupying troops).

1958: AIU was operating in 75 countries.

1962: Starr appointed Maurice Greenberg president American Home. Greenberg focused on broker sales, allowing the company to issue its own policies and maintain underwriting control. He also concentrated on commercial and industrial risks, and developed substantial reinsurance facilities. Greenberg also initiated new products and services such as personal accident insurance, emphasizing deductibles.

1967: American International Group (AIG) was formed to hold shares of other domestic companies. Greenberg was elected president and CEO. Three years later AIU and its agencies and subsidiaries were taken in as wholly owned subsidiaries.

1976: AIG ceased writing policies for insurance companies it did not own. The company was organized into four divisions: the foreign general insurance division, the brokerage division of domestic general insurance, the agency division of domestic general insurance, and a life insurance division.

1979: AIG entered Eastern Europe, and established joint ventures with state-owned insurers in China and Yugoslavia.

1980: AIG entered into health-care services and acquired various Swiss real estate holdings.

1984: First ever decline in profits, owing to underwriting losses (including from a major hurricane). A special services division was established to underwrite risks of extortion, kidnapping, and ransom.

1987: Entered South Korea. AIG becomes the first foreign insurer listed on the Tokyo Stock Exchange. Henry Kissinger was named chair of AIG's advisory board. AIG Financial Products Corp. -- the division that would ultimately be responsible for causing the 2008 federal bailout -- was created.

1988: AIG formed a Hong Kong venture to introduce American fast food franchises into Asia.

1989: AIG was listed on the London International Stock Exchange. AIG implemented a hazardous-waste-cleanup tax through a 2% premium fee assessed on all commercial and casualty and property policies, with insurers matching that amount. AIGlobal was formed to consolidate property, casualty, life and group insurance, and facilitate multinational corporate finance.

1990: Listed on Paris Stock Exchange and Swiss Stock Exchange. AIG Trading Corp. was created to engage in commodity transactions. AIG acquired International Lease Finance Corp., which engaged primarily in the acquisition of new and used commercial jet aircraft, and their leading to airlines.

1991: Greenberg appointed Tom Tizzio as AIG's president; remained as chair and CEO.

1995: AIG was licensed to operate a general insurance business in China. Also expanded operations in Central Europe and South Africa. AIU was the first insurer to arrive in Kobe, Japan, after the earthquake, providing damage inspection, claims adjustments, and emergency supplies. AIG Trading Group helped structure and acted as a risk principal in one of the most significant gold mining hedges ever completed.

1999: U.S. Treasury grants approval for AIG to operate a federal savings bank. AIG ordered to cease group insurance sales in China, since Chinese companies have a monopoly on such products.

2000: AIG commits $1 billion to General Atlantic Partners, LLC, an investor in internet technology businesses.

(Sources: Julie A. Mitchell, "Notable Corporate Chronologies," Third Edition.)

Other Information:

Greenberg's Downfall

On March 14, 2005 Maurice Greenberg was forced to resign over allegations that AIG had used a complex reinsurance deal to inflate its earnings. (Jenny Anderson, "In Clash of Titans, Chief of AIG Met His Match," NYTimes, 3/05/2005). New York Attorney General Eliot Spitzer suggested that AIG and other insurance companies were engaging in "the same kind of cartel-like behavior seen in organized crime." (Monica Langley and Theo Francis, "Insurers Reel from Spitzer's Strike," Wall Street Journal, 10/18/2004)

The heated rhetoric was an indication of how politicized the case against AIG had become. The Wall St. Journal openly challenged Spitzer to indict Greenberg if he could substantiate his attacks on the famous executive. He later did.

Greenberg was replaced as chairman by Frank G. Zarb, who had been the head of Nasdaq when it was attacked by regulators for allowing market makers to engage in collusive practices that allowed them to widen spreads, and reduce competition. Zarb brought former SEC chair Arthur Levitt on as an adviser to the AIG board. Greenberg's son Jeffrey was also ousted as head of Marsh & McLennan.

AIG internal investigations discovered several questionable transactions that had been used to manage earnings. As a result, AIG announced a $1.7 billion reduction in its net worth on March 30, 2005, a a result of various accounting manipulations, including a secret $1.1 billion agreement to protect investors in Union Excess, a Barbados reinsurance company.

The company was embroiled in further problems after it was discovered that documents were being destroyed. "Starr International Co., which was controlled by Hank Greenberg, and which owned 12 percent of AIG shares, responded to Greenberg's dismissal from AIG by ousting the AIG directors from its board." (Jerry Markham, A Financial History of Modern U.S. Corporate Scandals, M.E. Sharpe, 2006).

More headlines followed disclosure that Greenberg transferred 2.3 billion AIG shares to his wife in order to protect his assets from lawsuits.

Another $1 billion in accounting problems was blamed on Greenberg, and Spitzer filed suit in May 2005 against AIG, Greenberg, and CFO Howard Smith. The existence of prominent outside directors -- including Richard Holbrooke, William Cohen, and Carla Hills -- failed to prevent the scandal.

Meanwhile, Greenberg was denied access to personal assets and files left at the company by its new management. The company turned over tapes to prosecutors.

In coordination with Spitzer and the U.S. Justice Department, the SEC settled charges against the company on February 9, 2006. AIG agreed to pay more than $1.6 billion to resolve charges related to improper accounting, bid rigging, and practices involving workers’ compensation funds.

The commission’s complaint alleged that AIG’s reinsurance transactions with General Re Corporation (Gen Re) were designed to inflate falsely AIG’s loss reserves by $500 million to quell analyst criticism that AIG’s reserves had been declining. The complaint also identified other sham transactions designed to mislead investors.

On April 8, 2005, the SEC obtained a protective order against Greenberg and AIG to secure documents related to the ongoing investigation.

On August 6, 2009, the SEC charged Greenberg and Hank Smith for their roles in AIG's accounting violations]. Greenberg paid a $15 penalty to settle the charges without pleading guilty. (See complaint filed in Securities and Exchange Commission v. Maurice R. Greenberg and Howard I. Smith, Civil Action No. 09 Civ 6939 (S.D.N.Y.) The SEC previously charged AIG in 2006 with securities fraud and improper accounting, and the company settled the charges by paying disgorgement of $700 million and a penalty of $100 million, among other remedies.

Financial information

Stock ticker symbol:

AIG

Fiscal year:

2007

Fiscal year:

2007

Major lines of business/segments:

Domestic Insurance: Largest U.S. underwriter of commercial and industrial insurance and #1 U.S. underwriter of Directors and Officers, Professional Liability, Workers' Comp, Surplus Lines, Environmental, Aviation, and other lines. Also #1 in life insurance and largest issuer of fixed annuities. Foreign: AIG is the most geographically diversified life insurance organization in the world, and the largest life insurer in the Middle East and Southeast Asia. It also manages the largest international property-casualty network in the world, including the largest foreign owned P-C insurance franchise in Japan, mainland China, Hong Kong, Korea, and Thailand. Aircraft: AIG owns the most valuable fleet of leased airlines in the world. Asset Management: AIG is the largest investor in corporate bonds in the U.S. For a description of the size of its operations, go here.

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American International Group (AIG)

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