Spitzer, Mills Reveal New AIG Misdeeds
By Daniel Hays
NU Online News Service, April 28, 1:34 p.m. EDT?American International Group documents indicate that improper accounting by the company cheated New York out of “tens of millions” owed the state’s workers’ compensation fund over more than a decade, officials announced today.[@@]
New York Attorney General Eliot Spitzer and Insurance Superintendent Howard Mills said that as a consequence, the insurance department is appointing a consultant to audit “years of alleged improper booking of workers’ compensation premiums.”
An AIG spokesman said the activity involved had generally been corrected eight years ago and stressed that the company was cooperating with the inquiry.
New York officials said the practice to be audited, now “apparently” discontinued, involved booking premiums for workers’ comp coverage as premiums for general liability coverage. They said the activity appears to have gone on for more than 10 years, and continued even after AIG insiders repeatedly challenged its legality.
It was explained that by booking the premium income as something other than workers’ comp, AIG avoided paying its true share into various workers’ comp funds.
Insurance department spokesman Mike Barry explained that among the operations that insurers pay into is the State Workers’ Compensation Security Fund. Carriers pay one percent of the total premiums they collect for workers’ comp insurance.
The fund pays the obligations of insolvent insurers to injured workers. It currently makes payments to 7,500 workers. Insurers also on a proportionate basis fund the state’s insurer of last resort the New York State Insurance Fund.
According to the officials, one AIG document dating from the early 1990s roughly estimated an unlawful benefit to AIG of tens of millions of dollars annually. The audit consultant, they said, will determine what portion of this money, if any, is owed to New York or others.
The ongoing investigation of AIG by the two agencies found that in 1992, an internal AIG legal memorandum to top management reported that the practice was illegal and followed similar warnings made years earlier.
At this point investigators have not determined when the practice stopped, according to the state officials, who said there is no evidence that AIG disclosed the practice to regulators or made restitution.
AIG spokesman Chris Winans said the accounting referred to by the regulators “largely had been corrected by 1997. As we have said in the past on all regulatory matters, we are committed to being as cooperative as possible.”
The information disclosed by Mr. Spitzer and Mr. Mills was turned up as part of an internal AIG review being conducted by two law firms–Paul, Weiss, Rifkind, Wharton & Garrison and Simpson Thacher & Bartlett.
AIG has been undergoing an intensive in-house investigation to restate various items in its upcoming 10-K annual report filing with the Securities and Exchange Commission, which was delayed until the end of this month. The announcement of the delay said that the company review of accounting had found improper documentation, and could lead to a restatement reducing the company’s book value by more than $1.6 billion.
The workers’ comp assessment funds at issue are designed to pay for the operations of the state workers’ comp board and provide certain other claim benefits for injured workers
Besides the continuing broad New York investigation, AIG is being probed for its accounting practices by the SEC and the U.S. Department of Justice. The probes have led to the resignation of AIG’s longtime chairman and chief executive, Maurice Greenberg, as well as its chief financial officer, Howard Smith. Both invoked their right against self-incrimination during questioning by investigators.