Friday, April 29, 2005

Internal Investigation of AIG Keeps Finding New Problems

The longer the internal investigation of American International Group goes on, the more problems seem to keep popping up.  According to reports (N.Y. Times here, Wall Street Journal here), AIG's audit committee has decided to postpone for a third time the filing of the company's annual report, which was due in mid-March.  One new area of concern, which will make it even harder to complete the audit and have management certify the financials as required by the Sarbanes-Oxley Act, are possible round-trip transactions with hedge funds that permitted AIG to recognize gains on the sale of securities repurchased in a later period.  These types of transactions are window dressing for the quarterly numbers, and while the total amounts may be small, they raise substantial questions about whether false financial statements were filed with the SEC and relied upon by investors.  Given Wall Street's addiction to consistently rising earnings and making the "numbers" each quarter, even a $.01 change in earnings could be material. (ph)

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