A.I.G. Fires 2 Executives for Not Helping in Inquiry

The New York Times
March 22, 2005

Two top executives at the insurance company, were dismissed yesterday for refusing to cooperate with regulators in a widening investigation of the accounting for some insurance transactions.

The two executives - Howard Smith, the chief financial officer, and Christian Milton, the vice president for reinsurance - were both dismissed yesterday after invoking their Fifth Amendment rights against self-incrimination in dealing with regulators investigating a transaction between A.I.G. and General Re, a reinsurance unit owned by Berkshire Hathaway, people close to the investigation said last night.

The two executives had previously been placed on leave.

An A.I.G. spokesman, Chris Winans, said last night, "Mr. Smith and Mr. Milton were terminated pursuant to company policy that requires employees to cooperate with government authorities on matters pertaining to the company."

Telephone calls to lawyers representing Mr. Smith and Mr. Milton were not returned.

The dismissals are the latest development in a rapidly unfolding situation at A.I.G., one of the world's largest and most powerful insurance companies. The Securities and Exchange Commission, the New York attorney general's office and the Department of Justice are taking part in an investigation that has already forced Maurice Greenberg, a titan of the industry and the top A.I.G. executive for nearly 40 years to, resign as chief last week.

It has led the company to delay the release of its federal annual filing as directors conduct a comprehensive review of any transaction that could be construed as misrepresenting the company's true financial position.

Regulators are trying to examine any transaction A.I.G. undertook that could have improperly affected results. In addition to looking at the deal with General Re, investigators are looking at other finite reinsurance deals, a murky area of reinsurance that allows companies to smooth their earnings, one person close to the investigation said.

They are also looking at any transaction that could have affected A.I.G.'s financial statements, the person said.

With respect to the Gen Re transaction, as well as most finite reinsurance transactions, regulators are examining whether there was a legitimate risk transfer, in which case it would be deemed appropriate to account for the transaction as insurance.

Regulators must look at any suspicious transaction and interview witnesses involved to try to determine if there was a legitimate transfer of risk, the person involved in the investigation said.

The General Re transaction, which people close to the situation say Mr. Greenberg played a role in initiating, led a group of independent directors to persuade the board to ask Mr. Greenberg to resign as chief executive last week. (General Re is a unit of Berkshire Hathaway, the insurance company run by the billionaire investor Warren E. Buffett).

General Re is cooperating with the investigation, and Mr. Greenberg continues to serve as nonexecutive chairman. Whether he keeps that role could depend on what regulators determine about the General Re transaction, or any other transaction, and whether it was improperly accounted for, people close to Mr. Greenberg said. Mr. Greenberg, who turns 80 in May, could also retire.

Another issue facing Mr. Greenberg is what role he will play in three companies with ties to A.I.G.. One of the companies, C. V. Starr & Company, is an insurance broker that does business with A.I.G.; Mr. Greenberg is president and chief executive of C. V. Starr.

Spokesmen for the various regulators either could not be reached or would not comment on the latest developments at A.I.G.

Regulators had planned on deposing Mr. Greenberg last Thursday, which could have presented a quandary for both Mr. Greenberg and the company. To pre-empt any divergence of interest, Mr. Greenberg gave up his chief executive role. He is currently in China as is another board member, former Ambassador Richard C. Holbrooke. It is unclear when that deposition will take place.

Martin J. Sullivan, who had been co-chief operating officer, took over as chief executive. After Mr. Smith was put on leave, Steven J. Bensinger, the treasurer and controller took over as chief financial officer.

Copyright 2005 The New York Times Company Company.

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