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AIG Accounting Scandal

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Emily Knuckey

on 16 June 2014

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Transcript of AIG Accounting Scandal

-Recorded Loans as Revenue Ex:
500M loan from Gen Re
What Happened
Who is Involved
How and why did it happen?
AIG Accounting Scandal
Price of Stock
What were the results?
Proactive Response
Reactive Response
Background Information

What happened?

Who was involved?

How did it happen?

Why did it happen?

What were the results?

Proactive Response

Reactive Response


Works Cited

Works Cited
Background Information
"Improper" Accounting

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
“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."
"Where [can] the soul of [your] company [...] be found?"
John Foley
-American International Group serves customers in over 130 countries
-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
-Current CEO is Robert Benmosche
-AIG was founded in 1919 by Cornelius Vander Starr
-Sold bonds within company when value raised to record as income
-Hid losses in financial statements
16 Alleged Violations
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

Appoint chief risk officer

Compensation of manager for ethical behavior

Protection for whistle blowers

Culture of Ethics

"Too big to fail?"
-Didn't record deferred acquisition costs in a timely manner
-Paid insurance brokers to steer business to AIG
New management

Acknowledge mistakes

Independent directors

Training programs
-Used collateral to buy mortgage backed securities
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 would you do if you worked for a company who was committing an accounting fraud?
-Fraudulent activity continued to happen through 2001-2008
Full transcript