Frustrated with the Lord of Regulation getting all the headlines recently, the Federal Bureau of Investigation announced yesterday a wide-ranging inquiry into the insurance industry that could extend into banking and other financial sectors.
FBI investigators and insurance regulators from multiple states are meeting in New York City today during which the regulators are apparently going to school the FBI agents on the structured finance transactions that insurers commonly use to manage earnings or — as described in the current climate of regulatory demagoguery — to manipulate financial statements. The FBI has assigned between 50 and 75 agents from its Financial Crimes Section to the probe and confirmed that its investigation is the result of the various criminal and regulatory probes that are already underway in regard to AIG and Berkshire Hathaway’s reinsurance unit, General Re.
One would hope that the FBI actually hires an expert or two in structured finance to explain the legitimacy of many such transactions before going on the Sunday talk shows and alleging widespread criminal activity within the industry. The misguided nature of the government and the bankruptcy examiner’s similar investigations into many of Enron’s structured finance transactions has already been well-chronicled, particularly by University of Chicago business professor and structured finance expert, Christopher Culp, in his recent books, Corporate Aftershock (Cato 2003) and Risk Transfer (Wiley 2004).
Meanwhile, checking in on the AIG saga, the Wall Street Journal ($) and others published a copy of a letter from former AIG CEO Maurice “Hank” Greenberg to the AIG board yesterday in which Mr. Greenberg laments AIG’s restatement of net worth earlier this week and points out that the restatement lacked critical input from Mr. Greenberg and former AIG CFO, Howard I. Smith. How the company could have reached its conclusions without Mr. Smith’s input “is beyond my comprehension,” observed Mr. Greenberg in the letter.
Of course, the Lord of Regulation made certain that the AIG board did not have such input by effectively forcing Messrs. Greenberg and Smith to invoke their Fifth Amendment privilege against self-incrimination by publicly alleging that they had committed crimes before even hearing from either man. So it goes in the post-Enron business world of being guilty until proven innocent if one engages in structured finance transactions.