AIG Scandal

The AIG Scandal

Martin Sullivan

• Got countless amounts of loans to pay debts and falsely fix the company balance sheet for the time being - although this would conflict with long term success of the company and investors money
• didn't consider the possibility of these loans and debts falling in on each other, and so they did and AIG lost 61.7 Billion dollars in the fourth quarter of 2008

PricewaterhouseCoopers

• Created anonymous global “counter parties” who bought “credit derivatives” from Cassano were bailed out
• $84 billion government loan and spent $440,000 on a spa vacation for top execs
• Slashed the $85 billion loan to $60 billion
• And much more
• In years there were a part of numerous other frauds

Jessica, Adam & Dado

Violated GAAPs

Where are they now?

Continuing Concern Concept

• Did not inform anyone that they were soon to be going bankrupt

Principle of Conservatism

• Overstated their assets & revenue, understated their liabilities & expenses

Objectivity Principle

• Many purchases did not have source documents as they were not real transactions

Full Disclosure Principle

• Not all debt was included in the financial statements of the company

• Buying back stocks from the Department of the Treasury which is helping to reduce Washington’s stake in the company from 92% from 70%
• Posted a profit of $21.5 billion for the fourth quarter of last year
• Stock price up 40 percent this year in April to $32.40 a share
• Critics insist AIG is benefiting from favorable treatment from Washington
• Some analysts say the company’s underlying businesses are struggling

Joseph Cassano

• Resigned after AIG Financial Products posted $11 billion in losses
• Now lives in an exclusive London enclave
• Allowed to keep $34 million in bonuses and the company hired him as a consultant at $1 million a month
• AIG in total received a 162 billion dollar loan - none of this money was accounted for - and then they only had to pay 112.5 billion back due to the government 'slashing' the loan
• He has not yet been prosocuted but is being watched very closely

Chris Dodd

• Was responsible for bonuses given out to the people high up in the company
• Had received more money from the scandal than anyone else
• Had a daughter as the scandal was being sorted out
• Had an operation due to prostate cancer
• Was not punished for anything that happened in the scandal

Key Players

Nature of the Scandal

• 2000 & 2001 – AIG inflates their financial reports with help of 'Gen Re'
• 2001 - Securities and Exchange Commission (SEC) suspects that AIG may be conducting questionable accounting without solid evidence
• 2004 – SEC files lawsuit against AIG for engaging in fraudulent accounting
• Feb 9, 2005 – AIG releases earnings for 2004

Who was affected?

Nature of the Scandal

• Many members of top management at AIG were forced to resigned
• The company faced a settlement in excess of 1.6 billion "for the sole purpose of enabling those companies to manipulate their accounting results and mislead investors"
• The shareholders lost a lot of money on their stocks
• The customers and clients of AIG were also affected due to having purchased their insurance with AIG
• the employees, obviously, lost their jobs and therefore lost wages

• March 30, 2005 – AIG discloses that an insurance deal with a company named Gen Re was accounted for improperly
• May 31, 2005 – Investigation shows that AIG had inflated their net worth through dishonest accounting by approximately $1.7 billion
• An SEC representative explained that Gen Re sold false insurance transactions to AIG in 2000 and 2001 "for the sole purpose of enabling AIG to manipulate their accounting results and mislead investors.”

Background

• world's largest insurance and financial services company
• founded in 1921 (91 years ago) by Cornelius Starr in Shanghai, China
• the headquarters is located in New York City, New York, USA
• company serves customers in over 130 countries
• 93 000 employees
• led by Maurice Greenburg