updated 3/22/2005 9:28:03 AM ET 2005-03-22T14:28:03

American International Group Inc., one of the world’s biggest insurance companies, fired two top executives for failing to cooperate with government investigators, a spokesman for the company said Tuesday.

The dismissals of Howard I. Smith, who had been AIG’s chief financial officer, and Vice President Christian M. Milton, were first reported in Tuesday editions of The Wall Street Journal.

AIG spokesman Chris Winans said that the men were terminated because of company policy “that requires employees to cooperate with government authorities on matters pertaining to the company.”

The Journal said AIG took action after the men signaled they would invoke their Fifth Amendment rights against possible self-incrimination amid a probe into whether AIG manipulated its books to mislead investors.

Smith took leave from the company last week in a management shuffle that also saw the board remove longtime chairman Maurice “Hank” Greenberg as chief executive officer, a post he had held for nearly 40 years.

Greenberg, 79, was to retire as CEO but remain nonexecutive chairman of the company.

The Journal said both Smith and Milton were likely to be knowledgeable about a transaction under scrutiny by federal and state regulations involving General Re Corp., a unit of Berkshire Hathaway Inc.

Smith reportedly met Monday with investigators from the offices of New York Attorney General Eliot Spitzer and the Securities and Exchange Commission. Neither Smith nor his attorney could be reached for comment.

Milton’s attorney, Frederick P. Hafetz, told The Journal he was told that AIG had put his client on leave without pay.

“Mr. Milton did not do anything wrong,” Hafetz said.

The probe by Spitzer, the SEC and federal prosecutors involves a complex deal involving reinsurance, which the investigators allege may have been used to manipulate AIG’s books rather than spread risk. AIG reportedly booked $500 million in premium revenue from General Re and then added $500 million in reserves to its balance sheet. The transactions took place in late 2000 and early 2001.

The Journal also reported Tuesday that AIG may have “unwound” at least half of the transaction last year.

New York-based AIG has said it would cooperate with multiple inquiries into its accounting.

It has been conducting its own probe into the reinsurance transactions.

The Journal also reported Tuesday that regulators have expanded their probe into AIG’s reinsurance dealings to include the company’s relationships with two obscure reinsurers — Union Excess Insurance Co. and Richmond Insurance Co., both located in Barbados.

At issue, the paper said, is whether Union Excess and Richmond Insurance are independent companies or under AIG’s control and whether AIG properly accounted for transactions with the companies.

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