Spitzer To Set Legal Ball Rolling On AIG
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Eliot Spitzer, the New York State Attorney General and the New York Insurance Department may file a civil complaint against American International Group (AIG) as early as today. Also in Spitzer's sights are AIG's former chairman and chief executive Maurice "Hank" Greenberg and Howard Smith the former chief financial officer. The insurance giant is accused of using reinsurance vehicles to make its financial position stronger than it really is. Everyone involved, including Spitzer, AIG and the former executives all refused to comment on the story to the New York Times. AIG has been under sustained attack for months. The company will have to make a massive restatement of its financial affairs, when it files a report with the SEC. It is widely expected to see its net worth drop by about $2.7bn. Spitzer and insurance regulators are not the only opponents. The SEC and the Department of Justice are also looking at AIG. Derivatives will also have an impact. Accounting for these will create a credit of $2.4bn. One particular transaction involving $500m is at the centre of the investigation. In 2000, AIG entered into a $500m deal with Berkshire Hathaway subsidiary General Re. This was recorded as an insurance transaction. AIG now admit that this should have been seen as a loan. The effect of the 2000 transaction was to inflate the AIG reserves.
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