The attorney general and insurance superintendent of New York announced they have filed a civil suit against American International Group alleging that executives at the company used improper accounting practices to pump up the company's earnings to deceive investors and regulators.
The suit, filed in Supreme Court of the state of New York, County of New York, against the New York-based insurance giant, claims the company "engaged in misleading accounting and financial reporting, projecting an unduly positive picture of AIG's underwriting performance for the investing public."
The suit names AIG, Maurice R. Greenberg, AIG's former chairman and CEO, and Howard I. Smith, former chief financial officer.
In the suit, Attorney General Eliot Spitzer and Insurance Superintendent Howard Mills allege the company and executives:
o Engaged in "two sham insurance transactions" that gave investors the impression the company had larger reserves for claims than it did. The transactions, personally approved and negotiated by Greenberg, the complaint alleges, involved the CEO of General Reinsurance Corporation, Inc.
o Hid losses from its underwriting business by converting the underwriting losses into capital losses.
o Created false underwriting income that involved false reporting of income from the purchase of life insurance policies as underwriting policies. This scheme was personally approved by both Greenberg and Smith, the suit alleges.
The complaint further claims that Greenberg manipulated AIG's stock price, instructing traders to "aggressively purchase" the stock and increase the worth of his and Smith's holdings.
The company is accused of booking workers' compensation insurance premiums as regular liability insurance revenue, which may have reduced AIG's contribution to the state's workers' comp system and avoided payment of taxes on the premiums.
AIG is also accused of deceiving New York state and other insurance regulators about offshore relationships with reinsurers. Documents related to this investigation were destroyed by AIG, the suit alleges.
