General Discussion

Former AIG head admits role in $500M accounting fraud
By Irina Ivanova
February 10, 2017 / 5:36 PM EST / MoneyWatch
Maurice “Hank” Greenberg, the former chief executive of American International Group (AIG), is admitting to fraud under a settlement of a long-running lawsuit against the insurance giant filed by New York prosecutors.

The agreement, announced Friday, calls for Greenberg to pay a total of $9 million to resolve the case. Howard Smith, ex-chief financial officer at the insurance giant, must pay $900,000.

The suit, which was initially filed by former New York Attorney General Eliot Spitzer in 2005, stems from AIG’s earlier admission that it participated in sham transactions between 2000 and 2004. Two of these were deals with General Reinsurance Company and Capco, an offshore entity, and were intended to make AIG’s reserves look healthier than they were by about $500 million.

“Today’s agreement settles the indisputable fact that Mr. Greenberg has denied for twelve years: that Mr. Greenberg orchestrated two transactions that fundamentally misrepresented AIG’s finances,” New York Attorney General Eric Schneiderman said in a statement. “After over a decade of delays, deflections and denials by Mr. Greenberg, we are pleased that Mr. Greenberg has finally admitted to his role in these fraudulent transactions and will personally pay $9 million to the State of New York.”

In May 2005, AIG restated its earnings for the prior four years, leading it to lower its profits by nearly $4 billion. The company also admitted to “improper or inappropriate transactions” and accounting irregularities, as well as intending to deceive regulators. Shortly after, the Department of Justice, the Securities and Exchange Commission and the New York Attorney General’s office each sued the company.

As Bear Stearns crumbled, The Daily Beast's Charlie Gasparino has learned, the firm’s CEO had another crisis: a sexual harassment accusation against legendary chairman Ace Greenberg that resulted in a $2 million payoff.

In one of his last acts as CEO of Bear Stearns, James Cayne made a payment of around $2 million to a woman who was poised to file sexual harassment charges against its legendary chairman, Alan “Ace” Greenberg, The Daily Beast has learned.

The allegations, which centered around “inappropriate touching,” according to people with direct knowledge of the matter, didn’t result in a lawsuit. Instead, reeling from the bad press of the firm’s role in the burgeoning financial crisis, Cayne settled the matter with the woman, a much younger employee who worked in sales capacity, and who had initially demanded a much higher payment. The employee also claimed to have had a witness to this behavior. In an interview, the 81-year-old Greenberg said, “I can’t comment on something as ridiculous as this.” When given another opportunity to comment on either the unproven allegations or whether the payment was actually made, Greenberg said, “I’m not going to dignify” the matter with a response. He referred to the entire issue as “bullshit,” and said my sources were “pathological liars.” When asked again to say whether the allegations were accurate or the payment had been made by Bear, he said, “I’m not going to comment.”

Cayne settled the matter with the woman, a much younger employee who worked in sales capacity, and who had initially demanded a much higher payment. The employee also claimed to have had a witness to this behavior.

When asked for a comment on behalf of Greenberg and the firm, a spokesman for J.P. Morgan (which purchased Bear Stearns in 2008) said the firm had no comment.