AIG pays $1.6bn over securities fraud charges New York

American securities regulators have fined American International Group (AIG) $1.6 billion for securities fraud involving improper accounting and bid-rigging.

The Securities and Exchange Commission (SEC) announced the settlement in February in co-ordination with the Office of the New York State Attorney General, the Superintendent of Insurance of the State of New York and the US Department of Justice.

AIG will pay the SEC $700 million, as disgorgement and a penalty of $100 million. The insurance giant will also undertake corporate reforms designed to prevent similar misconduct from occurring. The rest of the money will go to the other Federal and state regulators.

The SEC's complaint, filed in federal court in Manhattan on February 9, 2006, alleges AIG's reinsurance transactions with General Re Corporation (Gen Re) were designed to falsely inflate AIG's loss reserves by $500 million to quell analyst criticism that AIG's reserves had been declining.

The complaint also identifies a number of other transactions in which AIG materially mis-stated its financial results through sham transactions and entities created for the purpose of misleading the investing public.

Specifically, the Commission's complaint alleges that in December 2000 and March 2001, AIG entered into two sham reinsurance transactions with Gen Re that had no economic substance but were designed to allow AIG to improperly add a total of $500 million in fabricated loss reserves to its balance sheet in the fourth quarter of 2000 and the first quarter of 2001.

AIG president and chief executive officer Martin Sullivan says: "These settlements are a major step forward in resolving the legal and regulatory issues facing AIG. We have already implemented a wide range of improvements in our accounting, financial reporting and corporate governance, and will continue [to do so]. AIG is committed to business practices that provide transparency and fairness in the insurance markets."