Accounting Troubles at AIG Appear Extensive
American International Group (AIG) is conceding it made numerous improper accounting transactions, including the deal it made with a unit of billionaire Warren Buffet's company, the New York Times reported.
The deal in question occurred in 2000 between the insurance giant AIG and General Re, a unit of Buffett's company Berkshire Hathaway in which AIG's reserves were artificially inflated by $500 million. Reserves are important to investors and represent the funds an insurer puts aside to pay future claims, the Times reported.
AIG now says its accounting for the deal was improper. "AIG has concluded that the Gen Re transaction documentation was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance," the company said.
The ensuing flap over the deal has forced the March 14 resignation of AIG's longtime chief executive and chairman Maurice R. Greenberg. Several other high-ranking AIG executives have since been fired for failing to cooperate with investigators.
While federal and state regulators sift though dozens of transactions to determine the extent of the company's efforts to enhance its financial position, the company has continued its internal review.
Several transactions "appear to have been structured for the sole purpose or primary purpose of accomplishing a desired accounting effect," Wednesday's statement said. The company said that the impact of the accounting errors would lower its book value by $1.7 billion, the Times reported.
"The depth and breadth of troubles and apparent lack of accounting controls at AIG is alarming," William Wilt, an analyst with Morgan Stanley, wrote in a report Wednesday, which was reported by the Times.
The company statement also indicated differing strategies on the part of the company and Greenberg. The company is seeking to quickly resolve the investigations while Greenberg's attorneys look to protect their client, the Times reported.
"This is the first sign that they may be taking separate paths," Robert Mintz, a former federal prosecutor and head of the white-collar criminal defense group at the law firm of McCarter & English, told the TImes. "That doesn't mean they necessarily will conflict, but it means they are not walking the same road at this point."
Greenberg, 79, is scheduled for an interview with investigators on April 12, and Buffett, 74, is scheduled for an interview on April 11, the Times reported.