Speaking of a busy week for the SEC (emphasis FT Alphaville’s):
Washington, D.C., Aug. 6, 2009 - The Securities and Exchange Commission today charged former American International Group Chairman and CEO Maurice “Hank” Greenberg and former Vice Chairman and CFO Howard Smith for their involvement in numerous improper accounting transactions that inflated AIG’s reported financial results between 2000 and 2005. The SEC alleges that Greenberg and Smith are liable as control persons for AIG’s violations of the antifraud and other provisions of the securities laws. Smith also is charged with direct violations of the antifraud and other provisions of the securities laws.
The SEC alleges that Greenberg and Smith were responsible for material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets. According to the SEC’s complaint, Greenberg publicly described AIG as the leader in the insurance and financial services industry with a history of delivering consistent double-digit growth. However, AIG faced numerous financial challenges under Greenberg’s leadership that were disguised through improper accounting.
Greenberg and Smith agreed to settle the SEC’s charges and pay disgorgement and penalties totaling $15 million and $1.5 million, respectively. 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.
“Corporate leaders cannot avoid the truth and consequences of their companies’ performance by using improper accounting gimmicks and signing off on distorted financial reports,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Greenberg and Smith oversaw various improper transactions that presented a false financial picture and allowed AIG to claim success in meeting its performance goals.”
For context to these allegations, you’d need to go back to February 2006 and AIG’s then-settlement with the US regulator. As the FT reported at the time:
American International Group is…expected to announce a settlement with US regulators under which the world’s biggest insurance company will pay about $1.6bn to settle allegations of accounting abuses.
AIG is due to pay $800m to resolve an investigation by the Securities and Exchange Commission, the chief US financial regulator, into alleged accounting irregularities at the company, said people briefed on the case.
It is due to pay a further $800m following an investigation by Eliot Spitzer, New York state attorney general, which also focused on alleged financial reporting abuses, added the people familiar with the case. AIG, the SEC and Mr Spitzer’s office declined to comment on Wednesday.
The anticipated settlement would be the largest ever reached by either the SEC or Mr Spitzer with a public company.
The inquiries by the SEC and Mr Spitzer led to the ousting of Maurice “Hank” Greenberg, AIG’s longstanding chairman and chief executive who built it into an insurance giant, last year.
And Greenberg’s response, via his lawyers:
Mr. Greenberg is pleased that after a four-and-a-half year investigation involving the review of millions of pages of documents and numerous depositions, the SEC has now concluded not to charge Mr. Greenberg with any fraud. Despite AIG’s settlement of charges of civil securities fraud and the company’s payment of $800 million to settle SEC charges of civil securities fraud, the SEC concluded that the only charge that it would make against Mr. Greenberg was a “control person” charge under Section 20(a) of the Exchange Act. As the SEC acknowledges, Mr. Greenberg does not admit even this claim, although he acknowledges the obvious fact that he was CEO of AIG at the time of the accounting at issue. He believes that this is an appropriate basis to resolve the SEC’s investigations and put these issues behind him.
Related links:
Golub is favourite to be Chairman of AIG – FT
AIG loses $4.3bn case against Greenberg – FT