AIG reaches $1.6 billion settlement with N.Y., SEC


NEW YORK -- American International Group announced yesterday a $1.6 billion settlement to resolve regulators' charges that it rigged bids for commercial insurance and used fraudulent accounting techniques to artificially bolster results.

The settlement with New York Attorney General Eliot Spitzer, the Securities and Exchange Commission and the New York State Insurance Department is one of the largest ever paid by a company.

It's almost twice the $850 million that insurance broker Marsh & McLennan Companies Inc. paid last year to end a bid-rigging suit by Spitzer, and it tops the $750 million that telecom giant WorldCom Inc. agreed to pay the SEC after its fraud-fueled collapse into bankruptcy in 2002. It also exceeds the $1.4 billion that 10 leading investment banks agreed to pay Spitzer and the SEC in 2003 to settle claims that their analysts produced dubious research.

AIG agreed to pay $800 million to investors deceived by false financial statements and $375 million to policyholders harmed by bid-rigging activities, Spitzer's office said.

AIG also is to pay $344 million to states, including Maryland, harmed by the company's efforts to avoid paying its fair share into state-run workers' compensation funds between 1986 and 1995, Spitzer's office said.

Moreover, AIG will pay penalties of $100 million to the New York Attorney General's office and $25 million to the Justice Department.

Spitzer said AIG has acknowledged that it was wrong to provide incorrect information to the investing public and regulators and that it "regrets and apologizes" for its conduct.

The agreement will end a suit that Spitzer and New York's insurance regulator filed in May, removing a major legal concern that's been hanging over the company.

"AIG was and is a solid company that didn't need to cheat. It finds itself in this position solely because some senior managers thought it was acceptable to deceive the investing public and regulators," Spitzer said.

"However, by changing management, implementing reforms and providing restitution to injured investors, customers and states, the company has placed itself on a path toward resurgence," he said.

AIG's shares, which are on the Dow Jones industrial average, rose 1.1 percent, to close at $67.12. They dropped to a low of nearly $51 at the height of the scandal late last April.

The SEC filed civil securities-fraud charges against AIG yesterday and settled them at the same time.

The $800 million that AIG agreed to pay the SEC consists of the return of $700 million in ill-gotten gains and a penalty of $100 million.

The insurer has also undertaken corporate reforms designed to prevent similar misconduct in future, the agency noted in a statement.

"While this settlement concludes our investigation of AIG, our investigation continues with respect to others who may have participated in AIG's securities laws violations," said Linda Chatman Thomsen, director of the commission's enforcement division.

The settlement doesn't include two other defendants in Spitzer's May lawsuit: Maurice R. "Hank" Greenberg, AIG's former chief executive, and Howard I. Smith, the company's one-time chief financial officer.

Lawyers for Greenberg and Smith have said in the past that they will fight the suit's allegations.

Multiple accounting investigations rocked AIG last year and led to the departure of Greenberg after nearly 40 years at the helm of the insurer.

Spitzer and the New York State Insurance Department filed their suit in May alleging the giant insurer used fraudulent transactions to manipulate its financial statements and to deceive regulators and investors.

AIG said that many of the alleged infractions and restated five years of earnings to correct them.

The company still has to deal with private litigation filed by shareholders and other parties that claim they were damaged by its accounting missteps.

"There are a number of private lawsuits still out there," said Donald Light, senior insurance analyst with Celent, a Boston financial research and consulting company, before details of the settlement were announced.

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