Ex-chief of a.i.g. settles fraud case for $15 million
Federal regulators announced an agreement with Maurice R. Greenberg on Thursday to settle accusations that he oversaw an accounting fraud at the American International Group.
But Mr. Greenberg did not go quietly.
Shortly after the announcement from the Securities and Exchange Commission, Mr. Greenberg issued a defiant statement saying he had ”no responsibility” for the fraud at A.I.G., which he ran for about four decades ending in 2005.
Under the settlement, Mr. Greenberg agreed to pay just $15 million in penalties and disgorgement for overseeing fraudulent transactions at A.I.G.
The transactions led to an accounting restatement by A.I.G. of at least $2 billion, but Mr. Greenberg said the vast majority of the restatement ”was unnecessary.”
Once a case has been settled with the S.E.C., defendants are barred from making public denials or statements that the accusations were without merit. The S.E.C. issued yet another statement Thursday evening saying Mr. Greenberg had mischaracterized the case against him, but the agency did not say whether it would take further action against him.
Separately on Thursday, A.I.G. said that its board had elected Harvey Golub as its nonexecutive chairman. He is a director of A.I.G. and was the chairman and chief executive of American Express until 2001. He will take over from Edward M. Liddy. A.I.G. recently decided to separate the roles of chairman and chief executive.
Mr. Greenberg has been pursued by regulators and other legal adversaries for nearly a decade in connection with the vast financial problems at A.I.G. He has repeatedly denied any involvement in the company’s downward spiral, in court and Congressional testimony, and has blamed the officials who took over after he was forced out.
He is thought to have lost much of his personal fortune in the crash of A.I.G.’s stock last year, when the company had to be rescued by the Federal Reserve and the Treasury Department. A.I.G. is now nearly 80 percent government owned.
However, he still made millions from his executive pay package while chief executive, particularly during good years for the stock market. In 2004, his last full year as chief executive of A.I.G., he received a total of $34.1 million from A.I.G. and two related companies.
In its lawsuit, the S.E.C. accused Mr. Greenberg of instigating transactions to make A.I.G. look stronger than it really was over five years. It said Mr. Greenberg was liable as a ”control person” during the fraud, but it did not accuse him of fraud directly.
The agency also named a former chief financial officer of A.I.G., Howard I. Smith, who will pay $1.5 million to settle similar accusations.
C. V. Starr and several related entities controlled by Mr. Greenberg together constitute A.I.G.’s second-largest shareholder, after the federal government.
A statement from the firm said that ”Mr. Greenberg appreciates the S.E.C.’s recognition that he personally should not be charged with any fraud,” and that ”the settlement is recognition of his lack of responsibility, even as a control person, for the vast majority” of A.I.G.’s accounting improprieties.
Mr. Smith’s lawyer, Andrew M. Lawler, issued a shorter statement saying that he had been ”inclined to litigate this matter,” but that settling it allowed his client ”to move forward with his life without the added legal costs and distraction of this lawsuit.”
The S.E.C.’s complaint provided extensive detail on Mr. Greenberg’s involvement in ”numerous improper accounting transactions.”
They began at the beginning of this decade, when investors still marveled at what appeared to be A.I.G.’s uncanny ability to underwrite complicated and unusual risks without ever misjudging them. Mr. Greenberg often said that the conglomerate had never experienced what is known as an underwriting loss, which occurs when an insurer underestimates its exposure and fails to collect enough premium.
The S.E.C.’s complaint states that in fact, A.I.G. had begun incurring underwriting losses in 1999, but Mr. Greenberg decided to keep them secret. The trouble started, apparently, in the company’s auto warranty business, which was disappointing to Mr. Greenberg because his son and onetime heir apparent as chief executive had steered A.I.G. into that line of business.
Rather than own up to the problem, the complaint says, Mr. Greenberg and Mr. Smith came up with a complicated scheme to turn the unit’s $210 million underwriting loss into an investment loss, which would not perturb Wall Street analysts.
According to the complaint, the two took a shell company in Barbados, called Capco Reinsurance, and dumped the loss there, after first getting Capco off A.I.G.’s own balance sheet by bringing in some outside investors.
The S.E.C. complaint said that A.I.G. even lent the investors the money, hiding the loan by channeling it through still more A.I.G. subsidiaries.
The complaint also described transactions in which A.I.G. pretended to have sold bonds at a profit when it had not, and invented distributions from hedge funds.
Settling the lawsuit does not end Mr. Greenberg’s legal wrangles. The New York attorney general, Andrew M. Cuomo, is still pursuing a years-old civil lawsuit accusing him of doctoring financial statements.
And in a separate case, Mr. Greenberg is awaiting a ruling by a federal judge on whether he violated a trust several years ago by terminating an A.I.G. retirement plan, removing the assets and using them for his own business pursuits.
PHOTO: Maurice R. Greenberg was unbowed.(PHOTOGRAPH BY LOUIS LANZANO/ASSOCIATED PRESS)
Late Edition – Final
By MARY WILLIAMS WALSH and JACK HEALY