Greenberg Hammers AIG Board Members

The company said it will be restating its financials for the years 2000-2003, as well as the first three quarters of 2004. It said it expects to file its full report by the end of the month. The company first postponed its 10-K annual filing on March 30, saying it hoped to have it done by April 30–a deadline it missed.

For the past several months, AIG has been in the cross hairs of New York Attorney General Eliot Spitzer for, among other issues, its alleged misuse of finite reinsurance products to falsify earnings.

Both Mr. Greenberg and Howard Smith, the former chief financial officer, have invoked their Fifth Amendment right against self-incrimination when quizzed by state and federal investigators concerning transactions that are part of the internal review.

A May 1 AIG statement said an audit by PricewaterhouseCoopers had found ineffective controls, including the ability of "certain former members of senior management to circumvent internal controls over financial reporting in certain circumstances." Erroneous accounting that auditors have found "appears to have had the purpose" of enhancing "measures important to the financial community," AIG said.

The statement by AIG outlined dozens of misstated and improper transactions–involving municipal bonds, synthetic fuel, hedge funds, offshore reinsurance deals, foreign currency, life settlements, deferred acquisition costs and deferred compensation arrangements for AIG executives.

AIG said its latest revaluation involved accounting errors totaling some $2 billion, and that other changes would reduce net worth by another $700 million for a 3.3 percent total reduction in shareholder equity–which stood at $82.87 billion on Dec. 31, 2004.

Mr. Greenberg's letter to board members centered on AIG's press release on the audit and restatement process. "Given the innuendo contained in the AIG release of May 1, which can be interpreted as impugning the integrity of prior and present AIG management, I was surprised that the release provided no factual basis to explain why AIG or [company auditor] PricewaterhouseCoopers changed its position," Mr. Greenberg wrote.

He said the restatement entails hindsight analysis about "complicated accounting issues, which were originally made on a good faith basis by both former and present management and AIG's auditors without objection or inquiry from the board or any member of the board."

AIG's May 1 release laid the blame for the alleged accounting misdeeds on "certain former members of senior management" who had been able to "circumvent controls over financial reporting." It was well known that Mr. Greenberg was very much a hands-on CEO and would likely be one of the unnamed malfeasants.

"I am distressed that the board's release and future report are based upon a one-sided review of the issues," he wrote, noting that the restatements are being conducted "without consulting former management or providing an opportunity for them or their counsel to provide relevant input."

How the company could issue a restatement without talking to those who handled AIG's finances in the first place, he said, "is beyond my comprehension."

On Tuesday, Mr. Greenberg threatened a lawsuit against the company to retrieve certain files that he needs for his defense but that the company has reportedly refused to hand over due to either present or pending subpoenas. He also is seeking recovery of some personal property. An AIG spokesman had no comment on the matter.

"I have known many of you for a long time and am puzzled by your refusal to share sufficient information with me to permit me to respond to vile accusations being made against me and to provide input which could make the board's findings more complete and accurate," he wrote.

"I have always attempted to act honorably and responsibly during my stewardship of the company," he added. "The record amply reveals the significant growth and accompanying prosperity enjoyed by the company throughout my tenure. To have all of the accomplishments of my management team despoiled by judgments seemingly based upon incomplete facts is exceedingly disturbing."

AIG had its ratings downgraded by three major firms after its latest 10-K filing postponement. Moody's Investors Service cut its AIG long-term senior debt ratings to "Aa2″ from "Aa1″ with ratings staying on review for possible further downgrade. Fitch Ratings also cut AIG's long-term issuer rating and unsecured senior debt obligations to "Double-A" from "Double-A-Plus," and lowered AIG's insurance company ratings to "double-A-plus" from "triple-A."

A.M. Best Company downgraded the financial strength ratings of most of AIG's wholly-owned insurance subsidiaries to "A-plus (Superior)" from "A-Double-Plus (Superior)." However, the agency said, "despite the downgrade, A.M. Best believes that AIG maintains one of the strongest and most unique insurance franchises in the industry, with a breadth of products, capacity, highly intelligent operational managers and ability to respond to market conditions that will remain intact."

In addition, J. Paul Newsome, insurance analyst from A.G. Edwards & Sons Inc., told National Underwriter there was a major positive accounting adjustment revealed by AIG in its latest statement.

AIG said its accounting for "derivatives under the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 133–Accounting for Derivatives and Hedging Activities" was incorrect. Correcting the accounting would add some $2.4 billion to its book value as of the end of 2004, AIG said. Mr. Newsome said that such corrections in hedging accounting are actually not uncommon in corporate finances.

"It certainly is indicating that they have an offsetting factor to book-value losses," said Grace Osborne, an analyst from Standard & Poor's. "As it stands right now, accounting adjustment really will net out to a $300 million loss."

However, an AIG representative, Joseph Norton, cautioned that the $2.4 billion addition to book value from hedging accounting is not an absolute number and is subject to volatile changes.

AIG also noted in its disclosure that the effect of the $2.4 billion boost on consolidated shareholders' equity "will differ from period to period"–meaning the book-value boost could actually be less than or even more than the stated $2.4 billion.

"I am distressed that the board's release and future report are based upon a one-sided review of the issues…without consulting former management or providing an opportunity for them or their counsel to provide relevant input."

Maurice Greenberg, Former-CEO, AIG