AIG Investors Sue PwC over Huge Restatement

With a case against the company's former top officers still in progress, the shareholders now target its auditing firm, among others.
Stephen TaubOctober 1, 2007

American International Group shareholders have renewed their claims against former auditor PricewaterhouseCoopers and about four dozen other companies and individuals in an amended derivative lawsuit related to the insurer’s massive restatement in 2005, according to Reuters.

The shareholders are seeking to hold PwC and the others responsible for the restatement and the company’s sweeping February 2006 settlement with a number of regulators, which cost it $1.6 billion.

The amended complaint seeks damages from PwC, Marsh & McLennan Companies, ACE Ltd., and several current and former AIG directors and officers, according to the Reuters report. The original lawsuit, filed in 2004, named former AIG chief executive Maurice Greenberg and former CFO Howard Smith as defendants. AIG took over that suit in June.

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The wire service stressed that AIG itself is not suing PwC or the other individuals and groups added in the derivative lawsuit, which the shareholders filed in Delaware Chancery Court.

AIG “decided not to sue (PwC) based on the recommendation of a special litigation committee of AIG’s board of directors,” and the company “continues to have full confidence in the independence of PwC,” a company spokesman told Reuters.

In May 2005, AIG restated earnings downward by $3.9 billion over a five-year period to correct accounting errors. It also cut its net worth by $2.7 billion. That November AIG announced it would revise its financials again after discovering a $500 million understatement of previously disclosed retained earnings.

According to a 2005 Washington Post article, PwC ignored warnings from the audit committee of AIG’s board when in 2001 and 2002 it said it could not vouch for the insurer’s accounting and internal financial controls.

The audit committee also asserted in AIG’s annual report for those years that it could not independently confirm that AIG management “maintained appropriate accounting and financial reporting principles,” according to the report.