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US: A.I.G. to Pay $1.6 Billion to Settle Charges

by Vikas BajajThe New York Times
February 9th, 2006

The American International Group, the insurance giant, agreed today to pay more than $1.6 billion to settle New York State and federal charges that the company engaged in fraud, bid-rigging and improper accounting.

Half of the money will go to investors, $375 million will be repaid to policy holders and the rest, $344 million, will go to states harmed by the company's actions. New York State will also collect a separate $100 million penalty and the federal government will receive $25 million.

A.I.G. also agreed to reduce commissions to brokers and agents for steering insurance contracts to certain companies, and said it would support laws banning certain kinds of "contingent commissions" and requiring better disclosure of other payments.

The settlement with the New York attorney general's office, the Securities and Exchange Commission, the Justice Department and the New York Insurance Department will end a series of investigations into A.I.G., some of which started as long as four years ago.

Though federal and state authorities had been looking into different A.I.G. matters for years, they started working together early last year to look into what officials said was a sham deal between A.I.G. and General Re, an insurance company owned by Berkshire Hathaway, that allowed A.I.G. to bolster its reserves by $500 million.

That transaction was questioned because A.I.G. took on no risk for the money it received from General Re and the payments were deliberately hidden. Last week, three former General Re officials and a former A.I.G. executive were indicted on federal fraud and conspiracy charges in connection with that reserves transaction.

The deal announced today does not cover shareholder lawsuits and cases against Maurice R. Greenberg, who was ousted as the company's chairman and chief executive in March. He has said that he did nothing wrong and that A.I.G.'s audit committee and accountants were just as responsible as he was for the company's accounting.

Among the various charges that A.I.G. is settling, some stem from a yearlong investigation by Eliot Spitzer, the New York attorney general, into insurance industry bidding practices. Mr. Spitzer and the New York Insurance Department also jointly investigated the company's use of insurance reserves and the underpayment of workers compensation taxes to states.

The S.E.C, meanwhile, had been looking into falsification of financial statements by A.I.G. officials to bolster the company's publicly disclosed results.

"A.I.G. was and is a solid company that didn't need to cheat," Mr. Spitzer said in a statement. "It finds itself in this position solely because some senior managers thought it was acceptable to deceive the investing public and regulators."

The company, which has cooperated with many of the investigations, has already addressed many of the problems raised by the authorities. Last year, it reduced earnings for the last five years by $4 billion. Today, A.I.G. said it would take a $1.15 billion charge against its earnings to account for the settlement in the fourth quarter of 2005.

"These settlements are a major step forward in resolving the legal and regulatory issues facing A.I.G.," the company's chief executive and president, Martin J. Sullivan, said in a statement. "We have already implemented a wide range of improvements in our accounting, financial reporting and corporate governance, and will continue to make enhancements in these areas."

A.I.G. will also hire an "independent consultant" for three years to review the company's procedures for how it collects and reports financial information and also to monitor the company's compliance with its self-imposed changes.

Early this afternoon, shares of A.I.G. were trading up 93 cents, or 1.4 percent, to $67.31 on the New York Stock Exchange.




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