NEW YORK – American International Group Inc. (AIG) on Wednesday said it agreed to pay $126 million to settle federal criminal and regulatory probes into whether the big insurer helped two companies fraudulently inflate earnings.
AIG (search) announced the settlements after the Wall Street Journal said federal prosecutors were examining whether Maurice "Hank" Greenberg (search), AIG's 79-year-old chief executive, in 2001 manipulated AIG's stock price to save money in buying insurer American General Corp. (search)
New York-based AIG, the world's largest insurer by market value, agreed to give up $46 million in fees to settle Securities and Exchange Commission (search) charges it helped PNC Financial Services Group Inc. (PNC), Pennsylvania's largest bank, hide losses and increase profit.
AIG also agreed to pay an $80 million fine to settle a related U.S. Department of Justice probe and avoid prosecution. This concerned the PNC transaction and a policy that AIG sold to cell phone distributor Brightpoint Inc. (CELL), allegedly to conceal losses.
The penalties represent about 1 percent of annualized profit at AIG, which reported earning $8.03 billion from January to September.
AIG also agreed to establish a transaction review committee and submit to an independent monitor's review of transactions from 2000 to 2004. It did not admit or deny wrongdoing. Both agencies must give final approval to the settlements.
The insurer still faces New York Attorney General Eliot Spitzer's probe into insurance brokers' alleged collusion with insurers to fix prices. Spitzer accused broker Marsh & McLennan Cos. (MMC) in a lawsuit of bid-rigging, which led to the ouster of its chief executive, Greenberg's son Jeffrey.
"AIG's problem is not one of size, it is one of reputation," said Gerald Bollman, a portfolio manager at Great Companies LLC in Clearwater, Florida, whose $1.4 billion in assets include AIG shares. "There are going to be clouds over the company until all insurance investigations are resolved."
AIG spokesman Joe Norton said Hank Greenberg has not been contacted or interviewed by the U.S. Attorney's office, but otherwise declined to comment. Justice Department spokesman Bryan Sierra declined to comment.
AIG shares rose 3 cents to $64.23 on the New York Stock Exchange.
The PNC probe concerns whether AIG helped the Pittsburgh-based bank hide $762 million in bad loans, inflating profit by $155 million. PNC paid $115 million to settle related SEC fraud charges.
AIG agreed in September 2003 to pay $10 million to settle SEC fraud charges in the Brightpoint probe. Brightpoint, based in Plainfield, Indiana, in November 2001 restated more than three years of results.
Donald Light, senior analyst at Celent Communications LLC in San Francisco, said AIG previously resisted appointing a monitor.
"The question is whether there are bodies buried in those past deals," he said. "There is no reason to believe Brightpoint and PNC were the only customers for the kinds of products being examined."
The Journal, citing unnamed people familiar with the matter, said the criminal inquiry into Hank Greenberg centers on AIG's $23 billion purchase of Houston's American General in August 2001. It said the inquiry is in the early stages and may not lead to charges.
Greenberg is said to have called the office of Richard Grasso (search), then chairman of the New York Stock Exchange, to ask him for help in propping up AIG's share price, to keep AIG from having to issue more stock to pay for American General.
Though Grasso was out of the office that day, traders who worked for Goldman Sachs Group Inc. (GS) unit Spear, Leeds & Kellogg ultimately bought AIG shares, though it was unclear if this resulted from Greenberg's request, the newspaper said.
Goldman Sachs declined to comment.