Accounting & Tax

Controls Circumvented at AIG?

New York regulators are reportedly drafting a civil complaint against American International Group Inc., drawing heavily on the actions of former c...
Stephen TaubMay 3, 2005

American International Group Inc.’s ousted chief executive officer Maurice R. “Hank” Greenberg and former chief financial officer Howard I. Smith may have directed the insurance giant’s accounting improprieties, according to an internal review conducted by the insurer and first reported by The Wall Street Journal.

AIG had previously announced in a press release that “management has identified certain control deficiencies, including the ability of certain former members of senior management to circumvent internal controls over financial reporting in certain circumstances. “We now know that there were serious issues with our internal controls,” said AIG president and chief executive officer Martin J. Sullivan in a statement at the time.

According to the Journal, which cited “people familiar with the matter,” the senior management being referred to include Smith and Greenberg. Smith was fired in March, a week after Greenberg was forced out as CEO. He stepped down from the chairmanship shortly thereafter.

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In prepared remarks, David Boies, an attorney for Greenberg, reportedly stated: “Those decisions were made not merely by former senior management, but by present senior management, including operational heads and the company’s present directors and auditors. Accounting decisions are often matters of judgment, and particularly in light of changed circumstances, a different regulatory climate and an understandable desire to avoid conflicts with regulators, it is understandable that prior decisions would now be second-guessed.”

An attorney representing Smith did not return calls from the Journal seeking comment.

The Journal added that New York regulators are currently drafting a civil complaint against AIG, drawing heavily on the actions of Greenberg and Smith. The paper also said that based on current drafts of a 150-page report being written by the insurer’s two outside law firms, that report could paint an unflattering portrait of Greenberg and Smith.