March 26, 2005
Is the Fuse Burning Down at AIG?
Things just seem to get worse by the week at American International Group Inc. After long-time CEO Maurice Greenberg resigned last week because of the multi-agency investigation of an AIG-General Re reinsurance contract that has all the hallmarks of accounting window dressing rather than a real economic exchange, two senior executives -- one the (now former) CFO -- informed the company and investigators that they would assert their Fifth Amendment privilege (previous post here). Now comes word that the internal investigation by the audit committee (thank you, Sarbanes-Oxley) has turned up more questionable reinsurance contracts with what appear to be captive off-shore reinsurers that could lead to a restatement of the last five years of AIG's financial statements, with the total adjustments up to $1 billion. A New York Times article (here) discusses the AIG board's consideration of removing Greenberg from his position as non-executive chairman, even though he remains the company's largest individual shareholder and, in an odd arrangement, controls compensation for a number of senior executives through two off-shore companies. This is the type of torture by weekly revelation that we've seen before, and investors (along with the board and government agencies) must be wondering what will turn up next.
AIG postponed filing its annual report (10-K) with the SEC until March 31, and with a potential restatement looming, the company's auditors (PricewaterhouseCoopers) may be hesitant to sign off on this year's financials and certify that they were prepared in accordance with GAAP and GAAS. Moreover, the new CEO (Martin Sullivan) and CFO (Steven Bensinger) will also have to certify those financials (thank you again, Sarbanes-Oxley), and that AIG's internal controls are sufficient. Would you want to hold the pen over that piece of paper? With each new revelation, the pressure on Greenberg to assert the Fifth Amendment at his deposition -- currently scheduled for April 12 -- will grow because his counsel will have to be leery about whether additional problems will be revealed that could make Greenberg look worse than uncooperative -- i.e. perjury. His testimony will be under oath, so it's not a Section 1001 case any more. (ph)
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