SEC Warns Insurer that Misleading Statements May Result in Civil Action
The Securities and Exchange Commission has threatened legal action against American International Group Inc., saying the insurer made misleading statements about government investigations into questionable financial transactions.
The statements came in three press releases the company issued between 2002 and last week, the Wall Street Journal reported. The releases discussed transactions that one of AIG's units arranged for PNC Financial Group several years ago that helped the bank's quarterly results look less volatile.
AIG stated that authorities were investigating the PNC transactions, but in actuality, AIG knew that the SEC and the Justice Department were also looking into at least five other transactions. The SEC contends that since the investigations were broader than AIG said they were, the insurer may have violated federal securities law.
In a statement, AIG said "any action by the SEC would be unwarranted" and that "any contention that the three press releases are or may be false or misleading is without merit."
Regulators say the PNC transactions involved moving certain underperforming loans off PNC's balance sheet, making the financial results look better than they actually were. AIG said two years ago that it had “not entered into any other transactions" using the structure it sold PNC.
In fact, five other transactions, which AIG sold to two unidentified insurance groups, used the same structure and should have been consolidated on the buyer's balance sheet, regulators say.
AIG was able to keep debt off financial statements by transferring deteriorating loans to an apparently unrelated partnership or legal entity. If as little as 3 percent of the entity was owned by another company, consolidating the assets on its balance sheet could be avoided.
For PNC, AIG arranged off-balance-sheet entities that took ownership of $762 million in underperforming loans and other assets, allowing PNC to inflate 2001 earnings by 52 percent, according to regulators.
PNC has settled with the SEC, paying a $2.5 million fine and $90 million into a restitution fund for shareholder litigation.