New York AG (“Attorney General” or “Aspiring Governor,” take your pick) Eliot Spitzer and the New York State Insurance Department filed a civil lawsuit today against American International Group, Inc and its two former top executives — former CEO Maurice R. “Hank” Greenberg and former CFO Howard I. Smith — alleging that the two executives orchestrated a scheme that allowed AIG to manipulate its financial results and mislead regulators and investors.
After managing AIG into one of the world’s largest financial companies over the past 40 years, Mr. Greenberg resigned as AIG’s CEO and chairman this past March under pressure from the AIG Board and Mr. Spitzer. At around the same time, Mr. Smith was fired as AIG’s CFO for allegedly refusing to cooperate with Mr. Spitzer’s investigation, although Mr. Spitzer had made clear by that time that both Mr. Greenberg and Mr. Smith were targets of his parallel criminal investigation. Here are previous posts on the saga of Mr. Spitzer’s investigation of AIG and Berkshire Hathaway’s General Reinsurance Corp, and here is a copy of the complaint and Mr. Spitzer’s press release regarding the complaint.
There is really nothing much new in the complaint, which was filed in State Supreme Court in Manhattan and seeks damages and disgorgement of profits from the allegedly illegal transactions. The Lord of Regulation alleges that Mr. Greenberg orchestrated wrongdoing in “an apparent effort to improve the company’s financial results,” even as AIG “was a well-run and profitable company that didn’t need to cheat.” The complaint does not address the fact that the transactions in question were approved by AIG and its independent auditors. The Securities & Exchange Commission and Justice Department are also investigating AIG, but neither is involved in Mr. Spitzer’s civil lawsuit.
Meanwhile, AIG and its auditors, PricewaterhouseCoopers LLP, are working to finish the company’s delayed annual report by the company’s self-imposed May 31 deadline. Still remaining to be seen is whether AIG can weather an Enronesque meltdown now that the Lord has deemed Mr. Greenberg’s earnings management strategies as illegal, and to ponder the importance of good timing in going bust. AIG’s shares have lost almost a quarter of their value since Mr. Spitzer announced his campaign against AIG on February 12, closing today at $55.71 compared to a value of $73.12 on Friday, Feb. 11.