Money Matters, Simplified.
SEC gets tough, Greenburg to pay $1.5M
by Jaspreet Virk - August 7, 2009 - comments
Greenburg had often bragged of the company’s double digit growth, intended to boost its share price in comparison to competitors
New York, August 7: Indicted for artificially inflating earnings between 2000 and 2005, Maurice "Hank" Greenberg, who led American International Group Inc. (AIG) for 38 years until his ouster in 2005, has agreed to pay $15 million penalty to settle fraud charges, the Securities and Exchange Commission (SEC) said Thursday.
Howard Smith, the former chief financial officer, will pay $1.5 million for his alleged involvement in the sham accounting transactions.
Robert Khuzami, director of the SEC's Division of Enforcement, stated, "Corporate leaders cannot avoid the truth and consequences of their companies' performance by using improper accounting gimmicks and signing off on distorted financial reports."
Alleged violations
According to the complaint filed by SEC in U.S. District Court for the Southern District of New York, Greenberg led reinsurance transaction between AIG and Berkshire Hathaway's General Re Corp. that allowed the insurer to improperly increase its loss reserves.
The former head had initiated a deal with an offshore shell entity to cover up underwriting losses from AIG's auto-warranty insurance business and other transaction designed to improperly state capital gains.
Greenburg had also often bragged of the company’s double digit growth, intended to boost its share price in comparison to competitors.
A statement issued by Boies, Schiller & Flexner on Greenburg’s behalf said, "With these issues behind him, Mr. Greenberg looks forward to being able to concentrate on building for the future."
A statement on behalf of Smith said that resolving this issue will enable him to move forward in life with distraction of lawsuit or any future legal costs.
AIG in middle of a major overhaul
After the revelation of the accounting fraud and ouster of Greenberg, AIG had paid more than $1.6 billion to settle fraud charges of improper accounting in 2006.
Presently, the embattled giant is seeking to shed assets to repay the government for the loans it received to prevent collapse due to the financial crisis. The government currently owns 80 percent of AIG.
Tough tack by the SEC
The latest indictment marked a busy week for the SEC that is taking a tough stance against erring companies. The U.S. regulator has recently settle charges over accounting fraud by General Electric, and extracted $33 million from Bank of America for misleading investors while buying Merrill Lynch & Co.
The statement by SEC Enforcement Director Khuzami earlier this week that his division will now be allowed to subpoena documents without the sanction of the agency's five commissioners is likely to speed up future investigations.