Joseph H. Umansky, president of AIG Reinsurance Advisors over the past 13 years, became the first senior executive at American International Group Inc. to strike a deal with authorities to offer his testimony in return for immunity from potential charges related to the ongoing investigations of the company’s accounting of structured finance transactions, although it is still unclear with which governmental entity Mr. Umansky has cut his deal. Here are previous posts on the various investigation of AIG and Berkshire Hathaway related to these transactions.
Various governmental agencies are investigating AIG’s structured finance transactions involving reinsurance over the past five years or so that the regulators contend artificially inflated the company’s financial statements to mislead investors. The basic theory of the government’s case is that the reinsurance deals in question did not transfer enough risk to qualify for the favorable accounting that AIG used. Earlier this month, AIG announced that its revision of accounting treatment relating to various transactions would reduce its net worth by about $2.7 billion, which is about 3.3% of the company’s net worth.
Mr. Umansky is expected to testify against two key AIG executives who appear to be the prime targets of the investigations — AIG’s former chief financial officer, Howard I. Smith, who AIG fired in March for declining to cooperate with the ongoing investigations, and Maurice R. “Hank” Greenberg, AIG’s chief executive for almost 40 years, who resigned under pressure when he decided to exercise his his Fifth Amendment rights in response to the governmental inquiries.
Meanwhile, on the Berkshire Hathaway side of the investigatory landscape, that company announced on Friday that two executives working for overseas units of its General Reinsurance Corp. unit have been put on administrative leave with pay while U.S. and foreign authorities investigate their involvement in AIG reinsurance transactions and other similar transactions.
Just in case you are keeping track, the value of AIG’s shares has dropped by almost 30% since the disclosure of the government investigations in mid-February and, as this earlier post points out, the end of that drop may not yet be in sight.