AIG, Spitzer begin preliminary talks on settlement
July 8, 2005
SAN FRANCISCO (MarketWatch) -- American International Group and Eliot Spitzer have quietly begun talks to settle the New York Attorney General's civil lawsuit against the insurer within the last two weeks.
Preliminary discussions have taken place between Spitzer and Simpson Thacher & Bartlett and Paul, Weiss, Rifkind, the law firms representing AIG, Darren Dopp, a spokesman for the Attorney General, said on Friday.
"Both sides hope that this will lead to more formal discussions on a settlement," Dopp added.
Spitzer filed a civil lawsuit against AIG and the company's former Chief Executive Maurice "Hank" Greenberg and ex-Chief Financial Officer Howard Smith on May 26 claiming they used fraudulent transactions to manipulate the insurer's financial statements and deceive regulators and investors.
The New York Insurance Department joined Spitzer in the suit and has also been involved in early discussions on a settlement.
AIG (AIG), one of the largest insurers in the world, has been rocked this year by multiple investigations into its accounting. The company's shares are down more than 16% since it disclosed inquiries by Spitzer and the Securities and Exchange Commission on Feb. 14.
"A settlement with the New York Attorney General would be positive, removing an overhang issue for the company and the stock," Brian Meredith, an analyst at Banc of America Securities, said on Friday.
Talks, which started about two weeks ago, haven't reached the stage where the size of any financial penalty is negotiated. Rather, discussions focused on what reforms AIG may agree to adopt.
Talks hadn't begun earlier partly because Spitzer's office was waiting to see what course of action the SEC might take with its inquiries into AIG's accounting. After a time, when the SEC's actions hadn't become clear, Spitzer decided to proceed.
Any penalty AIG has to pay may be smaller than the $850 million in restitution that insurance broker Marsh & McLennan agreed to pay clients to settle its civil suit with Spitzer earlier this year, Meredith said.
The Marsh settlement was designed to reimburse clients who had been damaged by the broker's alleged bid-rigging and steering, Meredith said.
In the AIG case, it's not clear that any customers were damaged by the insurer's actions, he explained.
"There'll be a fine, but it won't be used to reimburse clients," he added. "The fine would go to the regulators probably."
AIG spokesman Chris Winans said the company doesn't comment on on-going litigation.
Simpson Thacher and Paul, Weiss also declined to comment.