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Greenberg, AIG named in suit over fraudulent transactions

New York state's crusading attorney-general, Eliot Spitzer, took on the world's biggest insurer after he sued American International Group (AIG) and its longtime former boss Maurice "Hank" Greenberg for cooking the books.

AIG and Greenberg, 80, were named as defendants along with Howard Smith, AIG's former chief financial officer, in Thursday's action by Spitzer's office and the superintendent of insurance for New York state.

The civil suit accused them of engaging "in numerous fraudulent business transactions that exaggerated the strength of the company's core underwriting business to prop up its stock price."

Spitzer said that Greenberg, who was in March forced out of the company that he ran for 38 years, was personally involved in the financial skullduggery at AIG. He said the company and its former top management:

-- Papered over losses in a Brazilian subsidiary by linking them to a Taiwanese subsidiary;

-- Conducted sham transactions with a reinsurance company to create the appearance of insurance reserves where none existed;

-- Hid underwriting losses from an auto warranty unit by transferring the losses to an offshore entity that AIG secretly controlled;

-- Created false underwriting income derived from the purchase of life insurance policies; and

The suit seeks unspecified compensation, damages and diverted profits from the alleged illegal transactions.

Spitzer and the US Securities and Exchange Commission slapped subpoenas on AIG in mid-February as part of an investigation into bid-rigging by insurers.

The investigation has widened into a forensic analysis of AIG's finances of recent years after evidence emerged of what Spitzer's lawsuit called "sham" transactions by the company.

The transactions were between AIG and General Re, a reinsurance firm controlled by billionaire investor Warren Buffett's holding company, Berkshire Hathaway.
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