Wednesday, December 1, 2004
American International Group, Inc. (AIG) announced on Nov. 30 that it had concluded a settlement with the SEC and Department of Justice regarding insurance products sold to two customers that assisted them in allegedly providing misleading financial statements. A post on Nov. 24 discussed the first report of the settlement. According to the AIG press release, the terms of the agreement involve the following:
As detailed in an AIG news release on November 24, 2004, the agreement with the SEC, under which AIG does not admit or deny any wrongdoing, will fully resolve all government claims against AIG and its subsidiaries regarding the transactions and related public statements and press releases. Pursuant to the agreement, AIG will pay into an SEC disgorgement fund approximately $46 million in fees (and interest on the fees) on the PNC transactions, which were structured by AIGFP. In addition, AIG is enjoined from future violations of certain provisions of the federal securities laws. The Brightpoint transaction, which was underwritten by the Loss Mitigation Unit of the National Union Fire Insurance Company of Pittsburgh, Pa., was settled with the SEC in 2003. The settlement includes the appointment of an independent consultant who will review certain transactions entered into between 2000 and 2004 to determine whether the transactions were used by a counterparty to violate GAAP or obtain a specified accounting or reporting result. The settlement also requires AIG to establish a transaction review committee. The independent consultant will review the policies and procedures of the transaction review committee.
AIGFP will pay a penalty of $80 million to the DOJ. The proposed settlement with the DOJ consists of an agreement with respect to AIG and AIGFP and a complaint and deferred prosecution agreement with AIGFP PAGIC Equity Holding Corp. (PAGIC) that will foreclose future prosecutions in connection with the PNC and Brightpoint transactions, provided that the companies comply with the agreements. AIGFP has also agreed to a statement of facts describing its conduct.
The SEC filed its complaint (here) in the U.S. District Court for the District of Columbia, and still needs final approval from the court, which is done routinely. According to the SEC's press release:
Under the terms of the settlement with the Commission, which is subject to court approval, AIG will be permanently enjoined from violating the antifraud provisions of the federal securities laws and from aiding and abetting violations of the reporting and record-keeping provisions of the federal securities laws. In addition, AIG has agreed to the appointment of an independent consultant to examine certain AIG transactions going back to the year 2000, including any transaction that was effected with the primary purpose of enabling a public company to achieve an accounting or financial reporting result. Further, AIG has agreed to establish a Transaction Review Committee to review certain future transactions involving heightened legal, reputational or regulatory risk.
The Department of Justice filed a criminal complaint against an AIG subsidiary (press release here), and will defer prosecution and dismiss the complaint if AIG complies with the terms of the settlement. The settlement allows AIG to avoid a federal criminal conviction--assuming it meets the requirements of the settlement agreement--that would have seriously jeopardized the company's state-issued licenses to sell insurance. The resolution does not, however, involve any state investigations, most prominently the one being conduct by New York Attorney General Eliot Spitzer (who was the subject of a profile in the Atlanta Journal-Constitution on Nov. 30). (ph)