AIG Subpoenaed By SEC, Spitzer
American International Group Inc., which has already clashed with the U.S. Securities and Exchange Commission over "nontraditional" insurance products, revealed last week that it has been subpoenaed again over the same issue.
In addition to being subpoenaed by the SEC, AIG said it also was served by the office of New York Attorney General Eliot Spitzer. In a two-paragraph announcement, the New York-based company said the subpoenas related "to investigations of nontraditional insurance products and certain assumed reinsurance transactions and AIG's accounting for such transactions. AIG will cooperate in responding to the subpoenas."
AIGs previous problem concerning nontraditional insurance sales was concluded Dec. 2, 2004, when the company reached a settlement with the U.S. Justice Department and the SEC. At that time, the company said it would undergo an examination of its transactions by an internal committee and an outside monitor to ensure compliance with accounting rules.
The cost of the settlement with penalties and fees was $126 million to settle charges that AIG allegedly helped two companies distort their financial statements through the use of nontraditional insurance and transactions arranged by its AIG Financial Products units. AIG said then that while it did not admit or deny wrongdoing, it had reached a settlement to resolve allegations that resulted from transactions that AIGFP structured with PNC Bank in Pittsburgh.
Another portion of the settlement ended Justice Department criminal investigations concerning both the PNC transactions and Brightpoint, a Plainfield Inc. phone distributor. The Brightpoint deal was written by AIGs Loss Mitigation Unit and involved insurance designed to spread a large loss over a number of years. The SEC said the transaction amounted to a disguised loan.
The PNC dealings involved transactions known as C-GAITS (Contributed Guaranteed Alternative Investment Trust Security), which were essentially designed to take $762 million in bad loans and lagging venture capital assets from the banks balance sheet, transferring them to a special-purpose entity.
Stephen M. Cutler, SEC enforcement division director, said last December that "AIG was reckless" in not knowing that the C-GAITS product it developed did not satisfy accounting standards. The SEC action, he said, is "a message to insurance companies and others that sell structured finance or other products to public companies that are designed for no purpose other than to improve those companies accounting results. In appropriate circumstances, marketers of such products will be held liable for the resulting misstatements in their customers financial disclosures."
Reproduced from National Underwriter Edition, February 18, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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