- The Washington Times - Thursday, May 26, 2005

ALBANY, N.Y. (AP) — New York Attorney General Eliot Spitzer yesterday filed a civil suit against American International Group Inc., accusing the nation’s largest insurance company and two former top executives of using “deception and fraud” to boost the company’s stock price.

The suit filed in state Supreme Court in Manhattan accused AIG’s former chief executive, Maurice “Hank” Greenberg, and chief financial officer, Howard I. Smith, of orchestrating an accounting scheme that made AIG’s financial picture appear brighter than it was, misleading both investors and state regulators.

“The irony of this case is that AIG was a well-run and profitable company that didn’t need to cheat,” Mr. Spitzer said. “And yet, the former top management routinely and persistently resorted to deception and fraud in an apparent effort to improve the company’s financial results.”

The 37-page suit accuses AIG of employing a variety of questionable accounting devices. The suit said that AIG “engaged in at least two sham insurance transactions” to give the impression its reserves were higher than they were.

It said Mr. Greenberg “personally proposed and negotiated” the deals with General Reinsurance Corp. (Gen Re), a unit of billionaire investor Warren Buffett’s holding company Berkshire Hathaway Inc.

Mr. Buffett has said he was not directly involved in the transaction, and the suit said the deal was worked out between Mr. Greenberg and Gen Re’s former chief executive.

The suit also charges that AIG concealed losses from insurance underwriting through offshore shell companies; mischaracterized income from the purchase of life insurance policies; and repeatedly lied to state insurance regulators about its ties to offshore companies.

The suit suggests that Mr. Greenberg and Mr. Smith manipulated the stock for their own financial benefit.

“Greenberg and Smith … both held hundreds of thousands of shares of AIG stock. For example, the value of Greenberg’s holdings increased or decreased approximately $65 million for every dollar AIG stock moved,” according to the civil suit.

Mr. Greenberg’s attorney, David Boies, didn’t immediately respond to a request for comment, and Mr. Smith couldn’t be reached for comment.

AIG spokesman Joe Norton said AIG — now operating under new management — was continuing to cooperate with investigators.

“There are no new claims raised in the complaint,” Mr. Norton said. “We are pleased that Attorney General Spitzer has recognized our cooperation and has previously indicated his expectations of reaching a civil settlement with AIG.”

AIG shares rose $1.63, or 3 percent, to close at $55.71 on the New York Stock Exchange yesterday. They still are well below the high end of the 52-week range of $49.91 to $74.98.

Kathleen Shanley, an analyst with Gimme Credit, an independent bond research firm in Chicago, said investors may have reacted positively because “although serious issues were raised, most of them have already been identified by the company in their own filings.”

Meanwhile, a grand jury is probing potentially criminal conduct by individuals at AIG, including former top management, according to sources quoted in the New York Times and the Wall Street Journal.

Mr. Spitzer and his staff have reclined to confirm that a grand jury is dealing with the case.

Mr. Greenberg, 80, resigned as chief executive officer and chairman of AIG in March, ending nearly 40 years at the helm of the insurance company. Mr. Smith was fired about a week later for failing to cooperate with investigators.

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