AIG Settles Fraud Charges With SEC

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By Michael Ha

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NU Online News Service, Sept. 11, 5:09 p.m.EDT--American International Group has agreed to pay a $10million civil penalty to settle fraud charges involving phonedistributor Brightpoint Inc. of Plainfield, Ind., the Securitiesand Exchange Commission announced yesterday.

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According to the SEC statement, charges stemmed from AIG'salleged role in fashioning and selling what the securitiesregulators referred to as a "purported insurance product thatBrightpoint used to report false and misleading financialinformation to the public."

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"The penalty reflects AIG's participation in the Brightpointfraud, as well as misconduct by AIG during the Commission'sinvestigation of this matter," the SEC stated. But in a separatestatement, AIG neither admitted nor denied the regulators'findings.

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This is the second time in recent months that AIG has beenaccused of improper business activity. In July, the New York Stateinsurance department said AIG's New Hampshire Insurance Co. hadrepaid $500,000 after improperly collecting terrorism insurancepremiums on some 600 New York City homeowners policies. Thedepartment at first said the collections were "illegal" and thensaid an investigation is underway.

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Commenting on the SEC's enforcement action against AIG, WayneCarlin, regional director at SEC's Northeast regional office, saidthat in this case, "AIG worked hand in hand with Brightpointpersonnel to custom-design a purported insurance policy thatallowed Brightpoint to overstate its earnings by a staggering 61percent."

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This transaction, Mr. Carlin continued, was simply "a'round-trip' of cash from Brightpoint to AIG and back toBrightpoint." By disguising the money as "insurance," AIG enabledBrightpoint to spread over several years a loss that should havebeen recognized immediately, he observed.

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Stephen Cutler, director at the SEC's division of enforcement,also noted that this case illustrates how securities regulatorswill "pursue insurance companies and other financial institutionsthat market or sell so-called financial products that are, inreality, just vehicles to commit financial fraud."

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AIG did not "come clean" in the course of the Commission'sinvestigation, another SEC official said.

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"On the contrary, AIG withheld documents and committed otherabuses, as outlined in the administrative order, compounding itsoverall misconduct," said Mark Schonfeld, associate regionaldirector at SEC's Northeast regional office,

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AIG defended its actions in a statement: "The consent decreeissued by the SEC relates to a ?non-traditional' insurance productwith respect to which a single insurance policy was issued in 1999by an AIG subsidiary. AIG consented to the SEC order to settle thematter and neither admitted nor denied the SEC's findings."

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AIG said "mistakes were made" in the underwriting of theBrightpoint policy. The insurer said it has taken "steps to correctthose mistakes. AIG's profit from this policy was less than$100,000."

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Additionally, AIG said it doesn't expect settlement terms withthe SEC to have any material impact on the company's current orfuture operating results.

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