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Euro Jumps to $1.32, Bonds Rally, Gold Surges
"Conspiracies rarely exist."
-- Dennis Gartman
in The Gartman Letter,
September 14, 2004
* * *
AIG to Pay $126 Million to Settle U.S. Probes
By Jonathan Stempel
Wednesday, November 24, 2004
NEW YORK -- American International Group Inc. on
Wednesday said it agreed to pay $126 million to
settle federal criminal and regulatory probes into
whether the big insurer helped two companies
fraudulently inflate earnings.
AIG announced the settlements after The Wall Street
Journal said federal prosecutors were examining
whether Maurice "Hank" Greenberg, AIG's
79-year-old chief executive, in 2001 manipulated
AIG's stock price to save money in buying insurer
American General Corp.
New York-based AIG, the world's largest insurer by
market value, agreed to give up $46 million in fees
to settle U.S. Securities and Exchange Commission
charges it helped PNC Financial Services Group Inc.,
Pennsylvania's largest bank, hide losses and increase
AIG also agreed to pay an $80 million fine to settle a
related U.S. Department of Justice probe and avoid
prosecution. This concerned the PNC transaction
and a policy that AIG sold to cell phone distributor
Brightpoint Inc., allegedly to conceal losses.
The penalties represent about 1 percent of annualized
profit at AIG, which reported earning $8.03 billion from
January to September.
AIG also agreed to establish a transaction review
committee and submit to an independent monitor's
review of transactions from 2000 to 2004. It did not
admit or deny wrongdoing. Both agencies must give
final approval to the settlements.
The insurer still faces New York Attorney General
Eliot Spitzer's probe into insurance brokers' alleged
collusion with insurers to fix prices. Spitzer accused
broker Marsh & McLennan Cos. in a lawsuit of bid
rigging, which led to the ouster of its chief executive,
Greenberg's son Jeffrey.
"AIG's problem is not one of size; it is one of
reputation," said Gerald Bollman, a portfolio manager
at Great Companies LLC in Clearwater, Fla., whose
$1.4 billion in assets include AIG shares. "There are
going to be clouds over the company until all
insurance investigations are resolved."
AIG spokesman Joe Norton said Hank Greenberg has
not been contacted or interviewed by the U.S.
attorney's office, but otherwise declined to comment.
Justice Department spokesman Bryan Sierra declined
AIG shares rose 3 cents to $64.23 on the New York
The PNC probe concerns whether AIG helped the
Pittsburgh-based bank hide $762 million in bad loans,
inflating profit by $155 million. PNC paid $115 million
to settle related SEC fraud charges.
AIG agreed in September 2003 to pay $10 million to
settle SEC fraud charges in the Brightpoint probe.
Brightpoint, based in Plainfield, Indiana, in November
2001 restated more than three years of results.
Donald Light, senior analyst at Celent
Communications LLC in San Francisco, said AIG
previously resisted appointing a monitor.
"The question is whether there are bodies buried in
those past deals," he said. "There is no reason to
believe Brightpoint and PNC were the only customers
for the kinds of products being examined."
The Journal, citing unnamed people familiar with the
matter, said the criminal inquiry into Hank Greenberg
centers on AIG's $23 billion purchase of Houston's
American General in August 2001. It said the inquiry
is in the early stages and may not lead to charges.
Greenberg is said to have called the office of Richard
Grasso, then chairman of the New York Stock
Exchange, to ask him for help in propping up AIG's
share price, to keep AIG from having to issue more
stock to pay for American General.
Though Grasso was out of the office that day, traders
who worked for Goldman Sachs Group Inc. unit Spear,
Leeds & Kellogg ultimately bought AIG shares, though
it was unclear if this resulted from Greenberg's request,
the newspaper said.
Goldman Sachs declined to comment.
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