AIG Accounting Scandal

"Improper" Accounting

"Where [can] the soul of [your] company [...] be found?"

John Foley

16 Alleged Violations

Conspiracy

Security Fraud

False Statements to SEC

Mail Fraud

AIG reported one the largest quarterly losses in US corporate history of 61.7 billion dollars in Q4

AIG Accounting Scandal

What were the results?

Proactive Response

• Appoint chief risk officer

• Compensation of manager for ethical behavior

• Protection for whistle blowers

• Culture of Ethics

• "Too big to fail?"

How and why did it happen?

Price of Stock

Reactive Response

“AIG was and is a solid company that didn’t need to cheat [...] it finds itself in this position solely because some senior managers thought it was acceptable to deceive the investing public and regulators."

What would you do if you worked for a company who was committing an accounting fraud?

• New management

• Acknowledge mistakes

• Independent directors

• Training programs

Who is Involved

Hank Greenberg CEO of AIG 1968-2005 Participation in falsely recording loans as revenue to maintain stock price

Ron Ferguson CEO of Gen Re involved in loaning AIG money to record as premium revenue

Shareholders that kept the stock got screwed

American taxpayers were pissed, their money used to bailout AIG, using millions for bonuses

What Happened

Background Information

-Fraudulent activity continued to happen through 2001-2008

-AIG was founded in 1919 by Cornelius Vander Starr

-Current CEO is Robert Benmosche

-American International Group serves customers in over 130 countries

-Recorded Loans as Revenue Ex:

500M loan from Gen Re

-One of leading insurance organizations globally providing property casualty insurance, life insurance, and mortgage insurance.

-Canadian Offices are in Montreal, Vancouver, and Toronto with over 500 employees serving more than 21,000 Canadians

-Sold bonds within company when value raised to record as income

Works Cited

-Hid losses in financial statements

Agenda

-Didn't record deferred acquisition costs in a timely manner

-Paid insurance brokers to steer business to AIG

AIG Admits 'Improper' Accounting. (2005, March 5). . Retrieved May 5, 2014, from http://online.wsj.com/news/articles/SB111218569681893050

Brady, D., Vickers, M., & Mcnamee, M. (2005, April 10). AIG: What Went Wrong. . Retrieved May 5, 2014, from http://www.businessweek.com/stories/2005-04-10/aig-what-went-wrong

Brenza, R. (n.d.). Insurance Fraud at AIG. . Retrieved May 5, 2014, from business.illinois.edu/~s-darcy/fin431/2008/ppt/lect26aig.ppt‎

The 10 Worst Corporate Accounting Scandals of All Time. (n.d.). . Retrieved May 5, 2014, from http://www.accounting-degree.org/scandals/

Wells Media Group. (2005). AIG Settles Fraud, Bid-Rigging and Improper Accounting Charges with SEC, N.Y.

Retrieved from http://www.insurancejournal.com/news/national/2006/02/09/65212.htm

Young, D. (2009, May 6). Actuarial Accounting: A Cautionary Report. . Retrieved May 5, 2014, from http://www.casact.org/education/spring/2009/handouts/young.pdf

-Used collateral to buy mortgage backed securities

Background Information

What happened?

Who was involved?

How did it happen?

Why did it happen?

What were the results?

Proactive Response

Reactive Response

Reflection

Works Cited

Trivia

Year