Greenberg Can't Minimize What He Did, SEC Says

NU Online News Service, Aug. 7, 1:56 p.m. EDT

Federal authorities released a statement countering former American International Group Chairman Maurice Greenberg's comments yesterday, which sought to diminish the import of accounting violation allegations against him.

Mr. Greenberg's statements followed the announcement that without admitting guilt, he had agreed to pay $15 million in fines and penalties to settle charges by the Securities and Exchange Commission that he engaged in improper accounting activity to inflate AIG's financial results between 2000 and 2005.

A statement by SEC spokesman John Nester said in part that the settlement "does not express any view that minimizes Mr. Greenberg's role in any of the transactions that have been the subject of restatement by AIG."

The company, which forced Mr. Greenberg from his post as chief executive officer in 2005, paid the SEC $800 million and issued a restatement that reduced AIG net income between 2000 and 2004 by a total of $3.92 billion and shareholder equity by $2.26 billion.

Two years later, the firm filed a $1 billion suit against Mr. Greenberg for fiduciary misconduct, and Mr. Greenberg has countersued. His suit argues that he did nothing wrong and the company's restatement was unnecessary and improper.

Yesterday, Mr. Greenberg issued a statement that said in part that the "SEC concluded that the only charge that it would make against Mr. Greenberg was that he was a 'control person.'"

He said also that "between 97 percent and 99 percent of AIG's restatement was either unnecessary or involved accounting for which Mr. Greenberg was not responsible even as a control person."

In his statement, Mr. Nester said, "under governing law, the charge against Mr. Greenberg as a control person with respect to AIG's alleged securities fraud requires his culpable participation in the underlying fraud."

Mr. Nester would not say whether the SEC had been in contact with Mr. Greenberg after he issued his initial statement, saying, "We wouldn't discuss communications with respondents." However, Mr. Greenberg issued a follow-up statement that tempered his comments.

His later remarks released through C.V. Starr, which he heads, said that the size of the fine he is paying "is a reflection of the importance of the charge to the SEC and Mr. Greenberg's willingness to make it is a reflection of his recognition of that importance."

It said further that "while Mr. Greenberg indicated that he is pleased with the terms of today's settlement, he recognizes the seriousness of a control person charge, and the significance with which the SEC treats it."

The statement added, "despite the parties' agreement as to the specific elements of AIG's 2005 restatement included in the control person charge, the parties continue to disagree as to the appropriateness of other components of the restatement."

However, the statement noted, " Mr. Greenberg was not meaning to suggest in his public statements that the SEC shares his view as to appropriateness or inappropriateness of the restatement as a whole."

The SEC–in a complaint that was addressed by the settlement, which included $1.5 million and fines and penalties for former AIG Chief Financial Officer Howard Smith–listed a variety of dodges it said were used to boost AIG's results, including:

o Sham reinsurance transactions with GenRe to make it appear that AIG had legitimately increased its general loss reserves–an activity that led to the conviction of four GenRe executives and one at AIG.

o A purported deal with an offshore shell entity to conceal multi-million dollar underwriting losses from AIG's auto-warranty insurance business.

o Economically senseless round-trip transactions to report improper gains in investment income.

o The purported sale of tax-exempt municipal bonds owned by AIG's subsidiaries to trusts that AIG controlled in order to improperly recognize realized capital gains.

Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement: "Corporate leaders cannot avoid the truth and consequences of their companies' performance by using improper accounting gimmicks and signing off on distorted financial reports. [Mr.] Greenberg and [Mr. ] Smith oversaw various improper transactions that presented a false financial picture and allowed AIG to claim success in meeting its performance goals."