Risk Management

AIG Faces New Grand Jury Probe

The insurance giant's dealings with cell-phone distributor Brightpoint were also the subject of charges brought last year by the Securities and Exc...
Stephen TaubOctober 22, 2004

American International Group Inc. announced on Thursday that the U.S. Attorney’s Office for the Southern District of Indiana has launched a federal grand jury investigation into its dealings with cell-phone distributor Brightpoint Inc.

The Securities and Exchange Commission brought civil charges against AIG last year regarding the insurance giant’s role in an accounting fraud at Plainfield, Indiana-based Brightpoint. The commission accused AIG of developing and marketing a “non-traditional” insurance product for the stated purpose of “income-statement smoothing,” which Brightpoint used to hide $11.9 million in losses and to overstate earnings by 61 percent in 1998, according to the SEC.

The commission accused AIG of “knowing that the primary purpose of the policy was to provide Brightpoint with a means for misrepresenting its losses as insured losses and for making material misstatements in its public filings.” In September 2003, without admitting or denying the charges against it, AIG agreed to pay $10 million to settle the SEC charges.

The U.S. Attorney’s probe is the fourth investigation of AIG announced by regulators in the past month. The SEC and the Department of Justice are investigating products that the company sold to PNC Financial Services Group Inc. In addition, AIG was mentioned last week when New York State Attorney General Eliot Spitzer filed a lawsuit against Marsh & McLennan Cos. for improperly steering business to insurers and rigging bids. AIG executives Karen Radke and Jean-Baptist Tateossian pleaded guilty to bid rigging and agreed to cooperate with the investigation.

Since the first of these probes was announced on September 21, AIG’s share price has fallen about 20 percent.

In a conference call with analysts, AIG chairman and chief executive officer Maurice ”Hank” Greenberg attributed the price drop, in part, to the press, according to TheStreet.com. Said Greenberg: “It’s the feeding frenzy that the press takes. We can’t control the press. They can say and do what they want.”

During the call, Greenberg also referred to the potpourri of probes as “a tragedy,” according to the website. “What’s going on in the United States is causing harm to many companies,” he reportedly added. “If a company is dishonest from the top down it should be dealt with as harshly as possible, but that is not the case with AIG.”