Regulators were expected to announce a US$1.6 billion settlement yesterday with American International Group Inc (AIG), which has been accused of involvement in an insurance bid-rigging case and the use of deceptive accounting practices, according to people familiar with the settlement terms.
The settlement, one of the largest regulatory settlements ever, will be split by the Securities and Exchange Commission, which will receive about US$800 million to compensate injured investors, and New York regulators who brought a civil case against AIG last year.
Chris Winans, a spokesman for New York-based AIG, said on Wednesday that the company had no comment. Details of the settlement were reported online on Wednesday by the Wall Street Journal.
Unacceptable
AIG, one of the world's largest insurers, was accused by New York Attorney General Eliot Spitzer last May of using unacceptable accounting tactics to make the company's financial performance appear better than it was, misleading both investors and regulators. The New York State Insurance Department also was involved in the investigation.
Besides naming AIG, the suit also alleged that AIG's former CEO, Maurice "Hank" Greenberg, and former chief financial officer, Howard Smith, orchestrated the scheme.
Greenberg, who resigned from AIG in March, has repeatedly insisted that he followed proper accounting procedures during his 38 years at the helm of AIG. Smith, too, has denied wrongdoing, and neither of the men were involved in the negotiations with the SEC and Spitzer.
The settlement is believed to be one of the largest regulatory settlements with a single company.
Last year, Spitzer reached an US$850 million agreement with Marsh & McLennan Companies Inc to settle bid-rigging and price fixing allegations. AIG was among the companies that allegedly participated in the scheme, and several former AIG employees have been among a dozen insurance executives who have entered guilty pleas in the case.
Fraud
The SEC has not filed charges against AIG; it is expected to file and settle allegations of accounting fraud with the company simultaneously, the Wall Street Journal reported.
Kathleen Shanley, an analyst with Gimme Credit, said a settlement would represent "a positive milestone" in AIG's efforts to resolve its past issues.
Greenberg was replaced as chief executive by Martin Sullivan, who oversaw the restatement of AIG's earnings back to 2000. The revisions knocked some US$2 billion off shareholders' equity and nearly US$4 billion off its profits.
"Under the new senior management team, the company has taken steps to restore confidence in its operations, and I view the announcement of a formal settlement as another step along the path to putting these issues behind it," Shanley said.
She noted that while US$1.6 billion was a large sum, AIG is a large company. AIG reported earnings of US$1.7 billion in the third quarter last year after absorbing US$1.6 billion in hurricane losses, mainly from Katrina.
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