Spitzer Says No Criminal Charges Likely Against AIG; Greenberg's Lawyer Maintains No Fraud Committed
The Insurance Journal
April 4, 2005
New York Attorney General Eliot Spitzer reassured the business world and those affiliated with American International Group that criminal charges are not likely to flow from his department's continuing investigations of AIG.
Also, the attorney for former AIG Chairman Maurice Greenberg said the industry leader committed no fraud and never would have agreed to certain reinsurance transactions if he thought they were improper.
Spitzer issued a statement that a civil resolution of all complaints against AIG was likely given the cooperation the insurer's management.
"An investigation of certain American International Group financial transactions and the way these transactions were reported is proceeding," Spitzer stated. " The board and current management of the company are now cooperating with this investigation. Based upon these efforts, and based upon our knowledge to date, we believe that a civil resolution with the corporation will ultimately be achievable."
Spitzer has been investigating AIG's accounting practices primarily related to reinsurance transactions with General Reinsurance and other offshore reinsurance companies. AIG's dealings with Starr International Co. are also under scrutiny.
AIG shares, which have dropped 25 percent since the company began receiving subpoenas from Spitzer and the Securities and Exchange Commission, rose 4.6 percent on the news of a likely civil resolution.
Former AIG Chairman Greenberg, who resigned after authorities began probing transactions between AIG and General Reinsurance, thought the transaction was legal and proper, according to his attorney.
"He never would have done anything if he thought it was wrong,'' said David Boies, Greenberg's attorney, in an interview yesterday on the Charlie Rose show on PBS. "Now that doesn't mean that the accounting was right. We've got to look at that issue. But certainly when he did it, he didn't think anything that he was doing was wrong or he wouldn't have done it.''
Spitzer and the SEC have been looking into whether the reinsurance was utilized not to transfer risk but to manipulate AIG's finances. Boies said Greenberg did not know the accounting of the product might be questioned.
"What you're talking about is something that has a very slight impact on the numbers, even if you conclude that the accounting is wrong,'' said Boies. "It's not something that goes to the integrity either of the company or the man,'' he maintained.
"It's not fraud," Boies told Rose.
AIG has since acknowledged that the accounting of the General Re reinsurance purchase was improper and that it and other reinsurance deals may have misrepresented AIG's net worth by as much as $1.7 billion over 14 years. AIG admitted that the General Re transaction added $500 million to its premiums and reserves for claims. It unwound $250 million of the deal last year's fourth quarter. Its 2004 annual statement has twice been delayed while it pursues internal probes.
"Whether it was classified as insurance or not made no difference to the income statement of the company,'' Boies said. "It did affect reserves. It did affect premiums.''
In other news, AIG continued to distance itself from various affiliated firms.
The New York Times reported that several top executives of AIG, including current Chief Executive Officer Martin Sullivan, has resigned from C. V. Starr & Company, a private holding company specializing in excess casualty business.
Sullivan, along with Donald P. Kanak, the chief financial officer and Edmund S. W. Tse, senior vice chairman for life insurance, resigned from the board of C. V. Starr. Last week, the same executives also reportedly ended their relationships with Starr International, which handles compensation plans for AIG executives.
Chris Winans, an AIG spokesman, told The New York Times: "This is a step in the efforts of AIG, C. V. Starr and Starr International to reach an amicable resolution of the interrelationships of the companies."