AIG's former Chief Executive Hank Greenberg agreed to pay $15 million to settle government allegations that he had cooked the books to inflate the insurer's earnings in the first half of this decade, the Securities and Exchange Commission said on Thursday.
Howard Smith, American International Group Inc's former chief financial officer, also agreed to pay $1.5 million to settle SEC charges relating to his and Greenberg's involvement in sham accounting transactions that artificially boosted the insurer's financial results between 2000 and 2005, the SEC said.
Greenberg and Smith, who both left AIG in 2005 amid the accounting scandal, agreed to settle the charges without admitting or denying the SEC's findings.
Greenberg later reiterated that he did not admit any claim under the SEC settlement except that he was the CEO of AIG at the time of the accounting issue.
According to the SEC, Greenberg and Smith were responsible for material misstatements that helped AIG falsely report financial results that consistently met or exceeded key earnings and growth targets.
The former executives engaged in a purported deal with an offshore shell entity to conceal multimillion dollar underwriting losses from AIG's auto-warranty insurance business, the SEC alleged.
Among other allegations, the executives finagled transactions with no economic substance, amounting to a round trip of cash, to report improper gains in investment income, the SEC said.
Greenberg had been notified by the SEC last year that he could face civil allegations related to AIG's reinsurance transaction with Berkshire Hathaway's General Re Corp, which prosecutors have said allowed AIG to improperly boost its loss reserves.
Last year, a former AIG executive and four former General Re executives were found guilty of conspiracy and fraud for their involvement in the reinsurance transaction for AIG.
Greenberg, who ran AIG for 38 years and built it into the world's largest insurer, publicly described the company as the leader in insurance and financial services industry with a history of delivering consistent double-digit growth, the SEC said.
In reality, AIG under Greenberg faced a number of financial challenges that, had they been properly reported ... would have exposed significant missteps in AIG's operations and caused the company to miss certain key earnings and growth targets, the SEC's complaint said.
AIG's board of directors forced Greenberg to resign after he refused to cooperate with an internal investigation into accounting practices.
The government has since been forced to use billions of dollars in taxpayer funds to prop up AIG after its foray into a type of credit derivative known as credit default swaps nearly led to its collapse.
(Reporting by Rachelle Younglai and Lilla Zuill; editing by Gerald E. McCormick and Andre Grenon)