American International Group Inc. said Wednesday it has agreed to pay $126 million to settle allegations by federal authorities that the insurance giant helped two customer companies commit accounting fraud.
Under an agreement awaiting Securities and Exchange Commission approval, AIG will pay $46 million fine to the watchdog agency to settle issues surrounding transactions that helped regional bank PNC Financial Services Group Inc. pump up its earnings. AIG will also submit to an independent monitor who will examine certain transactions by the company between 2000 and 2004 to determine whether any related parties violated accounting rules to achieve certain results.
New York-based AIG, one of the nation’s largest insurers, will pay another $80 million to the Department of Justice to settle a related investigation and avoid prosecution.
The tentative deal to wrap up those investigations came as The Wall Street Journal reported that said federal prosecutors in New York are investigating whether AIG Chairman Maurice “Hank” Greenberg manipulated the huge insurance company’s share price in 2001 to save money on a big acquisition.
The U.S. Attorney’s office in Manhattan is looking into whether Greenberg illegally interfered with his company’s share price just before AIG’s acquisition of insurer American General Corp. in August 2001, the Journal reported, citing people familiar with the matter.
Greenberg sought the help of Dick Grasso, then chairman of the New York Stock Exchange, to keep AIG’s shares above a trigger price that would have required AIG to pay more for Houston-based American General, the sources told the newspaper.
Grasso wasn’t in the office that day, but the request was relayed to floor traders overseeing AIG stock, the sources said, though it was unclear if they interfered to shore up AIG shares.
The inquiry is in its early stages and may not result in criminal charges, the Journal said.
AIG spokesman Joe Norton told the newspaper, “Mr. Greenberg has not been contacted or interviewed by the U.S. Attorney’s office, and therefore he has no ability to opine on what they are or are not investigating.”
The insurer had previously disclosed that the SEC was considering suing it for civil securities fraud over several 2001 transactions it conducted with PNC, and that the Justice Department was weighing criminal prosecutions against it in both the PNC matter and one involving cell phone distributor Brightpoint Inc.
AIG settled the Brightpoint case with the SEC in September 2003, agreeing to pay a $10 million civil fine to resolve allegations that it fraudulently helped the company falsify its earnings report and hide losses. As in all SEC settlements, AIG neither admitted nor denied the allegations.
Brightpoint, based in Plainfield, Ind., in late 2001 restated its earnings for the previous 3 1/2 years — leading to shareholder lawsuits against the company.
The SEC’s investigation of AIG’s dealings with PNC are said to involve three 2001 transactions in which the Pittsburgh-based bank increased its earnings by shifting $762 million of poorly performing loans and other assets off its balance sheet, allegedly in violation of generally accepted accounting principles.
A PNC subsidiary already has agreed, in June 2003, to pay $115 million in civil fines and restitution to settle the SEC’s allegations of securities fraud. The subsidiary was accused of conspiracy to violate securities laws by transferring $762 million in troubled loans and investments to off-balance-sheet entities in 2001.
In that case, the Justice Department deferred prosecution of PNC, citing its cooperation in a related investigation.
On another front, AIG is among several big insurance companies named in a civil lawsuit by New York Attorney General Eliot Spitzer against insurance brokerage Marsh & McLennan Companies Inc., which he accuses of bid rigging, price fixing and taking payoffs from insurers. In a scandal that is widening through the insurance industry, Spitzer has charged that the conduct of Marsh & McLennan, the nation’s biggest insurance brokerage, has resulted in businesses being forced to pay more than necessary for property and casualty policies.
Two executives of AIG have pleaded guilty to participating in illegal conduct.
AIG shares rose 8 cents to $64.28 in midday trading Wednesday on the New York Stock Exchange. The shares have been recovering from a 52-week low of $53.28 set in mid-October.