Friday, March 25, 2005

Murky Dealings at AIG

The board of directors of insurance giant AIG have been given a report that identified a series of questionable deals, known as finite reinsurance transactions, designed to boost its earnings, according to the WSJ:
AIG is weighing a move to clean up accounting mistakes totaling as much as $3 billion from as many as 30 transactions. The big insurer has yet to assess an additional 60 transactions that internal investigators have flagged as potential problems.
To put that figure in perspective, AIG reported $8 billion in net income in the first three quarters of 2004. Ten days ago the company announced that it had delayed filing its 10-K or annual report with the SEC, but that, "AIG does not believe that any of the matters subject to the review are likely to result in signifiicant changes to AIG's financial position."
The NYT reports:
Also under scrutiny is Starr International, a privately held company that is used primarily as a compensation vehicle for A.I.G. executives and employees. The company has $19 billion in A.I.G. stock "available for future distribution," according to a recent filing.
Depending on the stock prices at the time of the filing, $19 billion could represent 10 to 13 percent of the AIG's total market capitalization.
Another related entity under scrutiny is Richmond Insurance, a reinsurer based in Bermuda. AIG owns 19.9 percent of Richmond. (Reinsurance contracts with related entities could be used to manipulate financial statements.) Deposed chairman and CEO
Maurice Greenberg is also president and CEO of yet another entity, C.V. Starr, which is said to have done business with AIG.
So far this month, questionable finite reinsurance deals have been placed under review;
dealings with related entities are being investigated; Maurice Greenberg was pushed out by the board after 39 years; two senior executives were fired for not cooperating with regulators; and restatements are as high as $3 billion and counting.

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