Risk & Compliance

For AIG, Bad Press Begets Bad Press

According to the Securities and Exchange Commission, three of the insurer's press releases may be ''false and misleading.''
Stephen TaubOctober 5, 2004

More troubles for American International Group.

The insurance giant is already being investigated by the Department of Justice and the Securities and Exchange Commission for transactions marketed to PNC Financial Services Group Inc. Now AIG has announced that the commission will probably bring a separate civil enforcement action for issuing “false and misleading” statements in three press releases — two of them in recent weeks.

In 2002, reported the Associated Press, the commission found that AIG helped PNC create three special-purpose entities to remove $762 million of underperforming loans and volatile venture-capital investments from PNC’s balance sheet.

A January 30, 2002, AIG press release stated that “AIG has not entered into any other transactions using this structure.” In yesterday’s announcement, the insurer stated that the SEC believes this statement was misleading because AIG Financial Products Corp. (AIGFP) had entered into five other transactions with two other counterparties. AIG also stated that unlike the PNC transactions, none of the five additional transactions “had the primary purpose of moving troubled, volatile, or underperforming assets off the balance sheet of the counterparty.”

AIG also stated in its announcement that SEC staff members had not previously indicated to the insurer that this press release posed a problem.

On September 21 of this year, an AIG press release stated that the commission was “considering recommending that the SEC bring a civil action against AIG and AIGFP” regarding the PNC transactions. Yesterday, the insurer announced that the SEC deemed that release “a continuation of the problem that it perceives with the January 30, 2002 release” and therefore “false and misleading” because it identified only the PNC transactions.

And just last week, on September 29, an AIG press release announced that the Department of Justice had launched its own investigation into the company. Yesterday’s announcement noted that the SEC maintained that this latest press release “continued the allegedly misleading disclosure that had begun in 2002” by not presenting a fair picture of the scope of the DoJ probe. AIG added that the Justice Department also informed the insurer that in its view, that press release may be misleading.

In yesterday’s announcement, AIG insisted that “any contention that the three press releases are or may be false or misleading is without merit and that any action by the SEC would be unwarranted.”