Labels: AIG, Joseph Cassano

Labels: AIG, Eliot Spitzer

Labels: AIG, investigation

"But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with."

Labels: AIG

Labels: AIG, Maurice Greenberg, SEC, wells notice

Labels: AIG, Hank Greenberg, lawsuit

Labels: AIG, Berkshire Hathaway Warren Buffet, General Re

Labels: AIG, Berkshire Hathaway Warren Buffet, General Re

Labels: AIG, Berkshire Hathaway Warren Buffet, General Re, Ronald Ferguson

GICs guarantee institutions a certain rate of return on specific amounts of money. Providers promise to pay an agreed rate and get the money to invest in return. Profits are made on the spread between the rate the provider offers the buyer and the returns it can generate itself.

Municipalities often use GICs when they get large sums of money from a recent bond offering, but don't want to spend the cash straight away. Municipalities often ask brokers to help them track down the most attractive GICs.

"The investigations appear to be centered on broker activities in the municipal GIC market," said Thomas Abruzzo, managing director at rating agency Fitch and senior credit analyst for financial guaranty companies. "We don't anticipate that this will create problems for GIC providers, but that depends what things might be uncovered. It's an ongoing investigation and the story only started snowballing this week."

Labels: AIG, Department of Justice

Labels: AIG

AIG may pay up to $1.5 bln in settlement: report

Herald News Daily
January 13, 2005

American International Group Inc. may pay as much as $1.5 billion to settle civil investigations by state and federal authorities into an accounting scandal, The Wall Street Journal said Friday, citing sources familiar with the matter.

New York Attorney General Eliot Spitzer and the New York State Insurance Department filed a civil suit against the largest U.S. insurance company and its former chief executive, Maurice "Hank" Greenberg, last May, charging them with misleading investors by using improper accounting. A settlement is likely in two or three weeks and would include a deal with the Securities and Exchange Commission , a source familiar with the matter told Reuters. The agency declined to comment.

AIG spokesman Chris Winans declined to comment on the report other than to say, "We continue to cooperate with all our regulators." Talks are ongoing, a spokesman for Spitzer said, but it is too early to speculate on the terms of any settlement. "We‘re in no position to comment," he said.

A settlement of $1.5 billion would nearly equal the $1.57 billion in losses from Hurricanes Katrina and Rita that AIG suffered in the third quarter. A settlement would put an end to the lawsuit against AIG but would not include a deal with Greenberg or former AIG Chief Financial Officer Howard Smith, The Wall Street Journal said. Greenberg and Smith have denied any wrongdoing.

Settling for $1 billion would represent about 25 cents per AIG share after taxes, Wachovia Securities analyst John Hall said in a research note Friday, and 1 percent of AIG‘s book value. The cost rises to 38 cents a share if the settlement is not deductible.

"We had been projecting AIG‘s regulatory settlement would total roughly $550 million," Hall said. "While considerable, we don‘t believe the divergence between our expectation and the reported settlement will have a material effect on AIG‘s financial position." AIG shares were down 24 cents to $70.02 in midday dealings on the New York Stock Exchange , trading at about 2.04 times book value, which is relatively high for the sector.

Since February 11, 2005, the trading day before the company said it had been subpoenaed concerning investigations of products that might help companies smooth earnings, AIG shares have fallen about 4 percent, while the S&P insurance index has risen about 10 percent.
Any SEC settlement would have to be reviewed by the agency‘s five commissioners later this month, The Wall Street Journal said. Terms of the deal could change in that time, but parties are negotiating a payment of about $1.5 billion, it said.

The SEC has not brought a lawsuit against AIG, but the federal regulatory agency is expected to file and settle civil charges on the same day, if a deal can be reached. The civil suit against AIG and Greenberg by Spitzer and the New York State Insurance Department accused them of fraud and cooking the company‘s books. Smith was also named as a defendant.

The suit alleged that Greenberg and Smith, who were ousted as the investigation picked up steam, took part in numerous fraudulent business deals that exaggerated the strength of AIG‘s underwriting business and propped up its stock price. In addition to a fine, a settlement is likely to make formal a number of corporate governance reforms, some of which AIG has already put in place, the newspaper report said.

Citing sources close to the AIG board, it said AIG is weighing three new director candidates. While interim Chairman Frank Zarb has said he will stay in the job until AIG‘s annual meeting in May, the newspaper said he could stay up to an additional six months if a successor is not in place.

Labels: AIG, Eliot Spitzer, General Re, New York AG

Disney suit altered the legal landscape

Financial Times
August 11, 2005

Just over two years ago, shareholder activists still reeling in the wake of the corporate meltdowns at Enron and WorldCom celebrated a decision by Judge William Chandler that they believed would herald a new era of accountability in US boardrooms.

By ruling that investors could bring a case against Disney's board for approving a $140m severance package for Michael Ovitz, fired after just 14 months as Disney president, Judge Chandler was sending a distinct message: directors could be held personally liable if they failed to live up to their fiduciary responsibilities. The decision was unique, in part, because it did not require directors to have personally benefited from poor decision to hold them financially accountable.

The 2003 ruling reverberated far beyond the Disney case, creating a legal landscape that encouraged investors in companies ranging from Hollinger to AIG, the insurance giant, to mount legal challenges against boards after allegations of corporate malfeasance, and boardroom acquiescence.

But the 2003 shareholder victory, which simply allowed the case to go to trial, hit a snag on Tuesday, after Judge Chandler ruled that the Disney board could not be held liable for approving Mr Ovitz's severance package.

Corporate governance experts yesterday said Judge Chandler's ruling was not, ultimately, as signficant as his decision to allow the case to be heard in the first place. "This affects everything. The issue was the standard of law that [Chandler] created and that he allowed it to go to trial," said Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware. Mr Elson says that the Chandler decision does raise a high bar for monetary liability for directors, but also "opens a door" for shareholders by creating a duty of good faith.

Robert Curry, a member of the Board of Advisors of Columbia Law School's Center on Corporate Governance, said Judge Chandler, in emphasising that his finding that the Disney directors acted in good faith was dependent on the unique facts of the case, made it easier for shareholders in the future to be heard when challenging actions of their directors.

The Disney case also contrasts another lesser-known ruling in Delaware last year, when Judge Jack Jacobs ruled that a director of a US Virgin Islands-based telecoms group, Emerging Communications, was personally financially liable for approving a transaction that was not in the interest of investors because he knew "or at the very least had strong reason to believe" that the price was unfair.

In making his judgment, Judge Jacobs ruled that the director's "specialised financial expertise" he had previously worked as a securities analyst for Lazard and Gabelli & Co meant that he had "consciously and intentionally disregarded" his responsibilities.

Labels: AIG, Enron

AIG hires ex-SEC chair as adviser

Reuters
July 5, 2005

NEW YORK (Reuters) - American International Group, the world's largest insurer by market value that is battling through an accounting scandal, said Tuesday it had hired former U.S. Securities and Exchange Commission Chairman Arthur Levitt.

Levitt has been named a special adviser to its board of directors and the board's nominating and corporate governance committee. Levitt's duties will include advising on potential nominees for election to the board, as well as board procedures, structure and issues of governance.

"He will advise AIG on a wide range of corporate governance matters, work with AIG as it seeks to recruit the best qualified directors to represent all AIG shareholders and assist AIG as it reaches out to all of its shareholders," said AIG President and Chief Executive Martin Sullivan.

Levitt, who was the SEC's longest serving chairman with eight years at the helm, has extensive experience working on Wall Street and is joining AIG just as it begins to emerge from several months of bad news related to its management, accounting and other regulatory matters.

Labels: AIG

Welcome to the murky world of Kroll Inc - the private CIA

By Ben Hills
June 25, 2005

They helped track down billions of dollars of treasure looted from Kuwait by Saddam Hussein. They finally proved that "God's Banker", Roberto Calvi, found hanging under London's Blackfriars Bridge with bricks in his pockets, was murdered. They were hired by Prince Charles to find the "Princess Di tapes".

Move over James Bond, this is the real-life fantasy world of the thousands of former cops and spooks, bodyguards, forensic accountants, journalists and criminal lawyers who made up what claims to be "the world's foremost independent risk consulting company", Kroll Inc.

Not for nothing did a former executive of the company describe Kroll as "like a private CIA".

"Of course, there's lots of boring stuff too - corporate profiles, background checks on employees, data recovery," says a rival in the business, "But these are the ones that get the adrenaline going."

In the process, inevitably for a company employing large numbers of former CIA, FBI and Special Forces people, the company has occasionally been accused of misconduct - the bugging scandal in Brazil is just the latest in which Kroll Inc has been embroiled.

Founded in 1972 by a New York assistant district attorney, Jules Kroll, the company expanded aggressively across America and internationally into 60 countries. In Australia, Kroll formed an ongoing partnership with the accountancy firm Ferrier Hodgson.

Its customers were a who's who of the business world: Ford, Citibank, Hilton hotels, drug company Pfizer and Nestle among them. It has also worked for the US government.

Although its bread and butter work was legal corporate intelligence, such as profiling takeover targets, in countries such as Brazil, and now Iraq, where kidnapping is rampant, Kroll also specialised in "close body work" - bodyguards, protection and ransom.

In May last year, Julius Kroll received an offer he could not refuse. Marsh & McLennan, the New York insurance broker which claims to be the world's largest, took over Kroll for an eye-popping $US1.9 billion ($2.46 billion), more than $US100 million of which was pocketed by its founder.

Capitalised at $US6 billion, and with 60,000 employees in more than 100 countries - including Australia - Marsh & McLennan was the colossus of the industry, claiming a 40 per cent share of the global market for insurance broking.

But the company saw insurance as a mature market and wanted to expand into the related risk-management industry. No one could have foreseen when the takeover deal was signed in May last year that the sky was about to fall in.

Last October, New York's crusading district attorney, Eliot Spitzer, filed suit against Marsh & McLennan, accusing the company of having, for years, colluded with big insurance companies to "cheat customers in an elaborate charade of price fixing and bid rigging".

The three insurers he named were the giants American International Group, Zurich America Insurance Company and Ace Ltd. Adding spice to the story was the relationship between them: AIG was headed by the 79-year-old insurance industry legend Maurice "Hank" Greenberg; his son Jeffrey ran Marsh & McLennan, and; another son, Evan, was boss of Ace.

Spitzer claimed that Marsh & McLennan jacked up insurance premiums - thus increasing its commissions, and the profits of the insurers - with "fake bids, collusion, improper steering of business, payments by insurers to avoid solicitation of competing of competing quotes, and threats against those resisting participation in the fraudulent schemes".

The company "acted, in short, less like a broker with a fiduciary obligation to its clients than as the linchpin of a racket", Spitzer said.

Marsh & McLennan's shares tumbled more than 25 per cent, despite pledging it was "committed to getting all the facts, determining any incidence of improper behaviour and dealing appropriately with any wrongdoing".

Jeffrey Greenberg was forced to resign. His replacement was a man the company had inherited a few months earlier when it took over Kroll Inc, Michael Cherkasky, who was uniquely placed to steer the company through the scandal which threatened to destroy it.

For 16 years, Cherkasky was a white-collar crime buster for the New York District Attorney's office; Spitzer, now prosecuting Marsh & McLennan, was his protege. In 1994, Cherkasky joined Kroll - gamekeeper become poacher - working his way up to the chief executive's office.

Within three months, Cherkasky had overseen a clean-out of Marsh & McLennan's board, and the sacking of most of the executives deemed accountable for the corruption. In January, he persuaded Spitzer to drop the civil charges against the company by pledging to pay $US850 million to clients around the world - including Australia - that Marsh & McLennan had defrauded.

Criminal charges are still pending against 10 former executives of Marsh & McLennan and the insurance companies. In February, Kathryn Winter, the 50-year-old managing director of Marsh Inc, pleaded guilty to fraud in the Manhattan State Superior Court. She faces up to four years' jail, depending on how keenly she co-operates with Spitzer's investigators.

Cherkasky personally apologised to 120 of his biggest clients, and showed thousands of staff the door in a bid to restore the ailing giant to profitability.

He is now engaged on an even greater challenge - to convince outraged clients who had been deserting the company in droves, that Marsh & McLennan is serious about its reforms.

Labels: AIG, background checks, Eliot Spitzer, Kroll

AIG executive rolls for Spitzer

June 9, 2005

A former American International Group senior executive may spill the beans on the controversial reinsurance deals of Warren Buffett's company. Joseph Umansky was once known inside the company as a troubleshooter. In the sprawling, multi-tiered investigation of AIG and former top executives, he may be a source of trouble.

Mr Umansky was a senior vice-president in the corporate division of the insurer AIG and president of AIG Reinsurance Advisers, a reinsurance unit. Part of the inner circle of executives who dealt closely with the former chief executive, Maurice Greenberg, he was intimately involved in many of the deals that regulators and AIG itself have found to be improper.

Mr Umansky is to co-operate with New York attorney-general Eliot Spitzer in exchange for immunity. That complicates a parallel investigation by the Justice Department and the Securities and Exchange Commission.

Labels: AIG, Eliot Spitzer, General Re, New York AG

3rd General Re official faces a fraud complaint

By Timothy L. O'Brien The New York Times
MAY 12, 2005

The U.S. Securities and Exchange Commission has notified a third executive of General Re that he faces a civil fraud complaint as part of an investigation of financial manipulation in the insurance industry, according to a person briefed on the matter. The executive, John Houldsworth, was the head of General Re's office in Dublin. Houldsworth has been in the middle of several questionable transactions that have drawn the attention of regulators in the United States and other countries. While he still holds a senior position in Dublin, he no longer manages the office.

Separately, the pension fund TIAA-CREF said on Tuesday that its chief financial officer, Elizabeth Monrad, had requested and been granted an unpaid leave of absence to respond to a regulatory action against her. The SEC notified Monrad last Thursday that it planned to file a civil fraud complaint against her in connection with a questionable transaction between her former employer, General Re, and American International Group, according to a person briefed on the matter. Both General Re and AIG are targets of investigations into fraudulent insurance practices. Both are cooperating with the inquiries.

Last week, the SEC also notified a current General Re executive, Richard Napier, that it planned to file a civil fraud complaint against him in connection with the AIG transaction, according to two other people briefed on the matter.