AIG Accounting scandal
Who's Involved
What's Happening Now
- On March 14, Maurice Hank Greenburg resigned from his position as CEO because of fraud allegations
- Another two top executives were fired on March 21 as well as the chief financial officer, Howard Smith
- In 2005 when after AIG acknowledged that it had made mistakes in accounting its shares dropped 22% to $57 each
- In 2008 AIG recorded reported the largest quarterly losses in U.S corporate history at the time, $61.7 billion. This made their shares drop to almost nothing.
- AIG have began there own internal investigation which has shown several deals that were not properly accounted for
- AIG has planned to change how it accounts for deferred compensation
- In 2006 AIG payed 1.64 billion to resolve state and federal accusations that it misled investors and regulators
- Now AIG has been able to increase their stock up to an average of $52 each
Violations/Errors
AIG?
- AIG violated the 8th principle of accounting "Revenue Recognition Principle" which means that revenues are recognized as soon as a product has been sold or a service has been performed, regardless of when the money is actually received.
- For example a company could earn and report $20,000 of revenue but receive $0 in actual cash amount
- American International Group is an insurance company
- Serves commercial, institutional, and individual customers in over 130 countries
- Over 70 million commercial and consumer clients worldwide
What Happened
- Over 5 years AIG made a total of $4.3 billion in accounting errors.
- On March 30th AIG had acknowledged that it had improperly accounted for the reinsurance transaction to Bolster reserves
Brady, D. (April 10, 2005). AIG: What Went Wrong. In BloomBerg Businessweek. Retrieved May 15, 2014, from http://www.businessweek.com/stories/2005-04-10/aig-what-went-wrong.
Tracer, Z. (December 12, 2102). AIG Bailout Ends Four Years After Two-Year Plan: Timeline. In BloomBerg . Retrieved May 15, 2014, from http://www.bloomberg.com/news/2012-12-11/aig-bailout-ends-four-years-after-two-year-plan-timeline.html.
Kay, J. (March 24, 2005). Top insurance company mired in allegations of accounting fraud. In World Socialist Web Site. Retrieved May 15, 2014, from http://www.wsws.org/en/articles/2005/03/aig-m24.html.
- After AIG recorded such a big loss the federal reserve bailed them out with an $85 billion loan in exchange for a 79.9% equity stake.
- Over time AIG kept receiving a bailout bill and by July 2009 they have received a total bailout package of 182 billion.