AIG's former Chief Executive Maurice 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 was forced to resign from AIG after 38 years as CEO because he refused to cooperate with an internal investigation into accounting practices.
In a statement issued after the settlement was reached, Greenberg said he did not admit any of the SEC's claims except that he was the CEO of AIG at the time of the accounting issue.
Smith, in a statement issued by his lawyer, said he was initially inclined to fight the allegations but decided to settle the matter, enabling him to move forward with his life without the added legal costs and distraction of this lawsuit.
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.
In the complaint, the SEC alleges there were three primary areas of fraud: a reinsurance transaction with Berkshire Hathaway's General Re Corp that improperly boosted AIG's loss reserves; transactions with an offshore shell entity to conceal multimillion-dollar underwriting losses within AIG's auto-warranty insurance business; and other transactions that misstated investment income, or capital gains.
Of the Gen Re transaction, the SEC alleged the executives finagled a transaction to look like reinsurance even though it had no economic substance, amounting to a round trip of cash that had a specific and false accounting effect.
The SEC previously charged AIG in 2006 with securities fraud and improper accounting. The company settled the charges by paying disgorgement of $700 million and a penalty of $100 million, among other remedies.
Greenberg had been notified by the SEC last year that he could face civil allegations, including in relation to AIG's reinsurance transaction with General Re.
Last year, one former AIG executive and four former General Re executives were found guilty of conspiracy and fraud for their involvement in the Gen Re reinsurance transaction with AIG. Greenberg was not charged in the matter.
The U.S. government last year was 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, Andre Grenon, Gary Hill)