AIG 2006 Annual Report Download - page 69

American International Group, Inc. and Subsidiaries
As part of the settlement with the SEC, the SEC filed a civil record keeping provisions of those laws. AIG, without admitting or
complaint, alleging that from 2000 until 2005, AIG materially denying the allegations in the SEC complaint, consented to the
falsified its financial statements through a variety of transactions issuance of a final judgment permanently enjoining it and its
and entities in order to strengthen the appearance of its financial employees and related persons from violating certain provisions
results to analysts and investors. AIG, without admitting or of the Exchange Act, Exchange Act rules and the Securities Act,
denying the allegations in the SEC complaint, consented to the ordering disgorgement of fees it received in the PNC transactions
issuance of a final judgment on February 9, 2006: and providing for AIG to establish a transaction review committee
(a) permanently restraining and enjoining AIG from violating to review the appropriateness of certain future transactions and
Section 17(a) of the Securities Act of 1933 (Securities Act) and to retain an independent consultant to examine certain transac-
Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) and Rules 10b-5, tions entered into between 2000 and 2004 and review the
12b-20, 13a-1, 13a-13 and 13b2-1 of the Exchange Act; policies and procedures of the transaction review committee. AIG
(b) ordering AIG to pay disgorgement in the amount of $700 mil- expects that the review by the independent consultant of transac-
lion; and (c) ordering AIG to pay a civil penalty in the amount of tions entered into by AIG during the 2000 to 2004 period will be
$100 million. The $800 million was deposited into a fund under completed during 2007.
the supervision of the SEC to be available to resolve claims The settlement with the DOJ consists of separate agreements
asserted against AIG by investors, including the shareholder with AIG and AIGFP and a criminal complaint alleging violations of
lawsuits described below. federal securities laws filed against, and deferred prosecution
In February 2006, AIG and the DOJ entered into a letter agreement with, a wholly owned subsidiary of AIGFP. Under the
agreement whereby AIG agreed to cooperate with the DOJ in the terms of the settlement, AIGFP paid a penalty of $80 million. On
DOJ’s ongoing criminal investigation of violations of federal January 17, 2006, the court approved an order dismissing the
criminal law in connection with misstatements in periodic financial complaint with prejudice.
reports that AIG filed with the SEC between 2000 and 2004
relating to certain transactions, accepted responsibility for certain Regulatory Investigations
of its actions and those of its employees relating to these Regulators from several states have commenced investigations
transactions, and paid $25 million in penalties. into insurance brokerage practices related to contingent commis-
In February 2006, AIG entered into agreements with the NYAG sions and other industry-wide practices as well as other broker-
and the DOI, resolving claims under New York’s Martin Act and related conduct, such as alleged bid rigging.
insurance laws. Under the agreements, $375 million was paid into In addition, various federal and state regulatory agencies are
a fund under the supervision of the NYAG and the DOI to be reviewing certain other transactions and practices of AIG and its
available principally to pay certain insureds who purchased AIG subsidiaries in connection with industry-wide and other inquiries.
excess casualty policies through Marsh & McLennan Companies, AIG has cooperated, and will continue to cooperate, with all these
Inc. or Marsh Inc. (Marsh). In addition, a fund of approximately investigations, including by producing documents and other infor-
$343 million was created to pay obligations resulting from the mation in response to subpoenas.
underpayment by AIG of its workers compensation premium taxes
and related fees and assessments. In addition, AIG paid a Pending Private Litigation
$100 million fine to the State of New York.
As part of these settlements, AIG has agreed to retain, for a Securities Actions. Beginning in October 2004, a number of
period of three years, an independent consultant who will conduct putative securities fraud class action suits were filed against AIG
a review that will include, among other things, the adequacy of and consolidated as In re American International Group, Inc.
AIG’s internal controls over financial reporting, the policies, Securities Litigation. Subsequently, a separate, though similar,
procedures and effectiveness of AIG’s regulatory, compliance and securities fraud action was also brought against AIG by certain
legal functions, and the remediation plan that AIG has imple- Florida pension funds. The lead plaintiff in the class action is a
mented as a result of its own internal review. group of public retirement systems and pension funds benefiting
Ohio state employees, suing on behalf of themselves and all
PNC Settlement purchasers of AIG’s publicly traded securities between Octo-
ber 28, 1999 and April 1, 2005. The named defendants are AIG
In November 2004, AIG and AIGFP reached a final settlement with and a number of present and former AIG officers and directors, as
the SEC, the Fraud Section of the DOJ and the United States well as Starr, SICO, General Reinsurance Corporation and Price-
Attorney for the Southern District of Indiana with respect to issues waterhouseCoopers LLP (PwC), among others. The lead plaintiff
arising from certain structured transactions entered into with alleges, among other things, that AIG: (1) concealed that it
Brightpoint, Inc. and The PNC Financial Services Group, Inc. engaged in anti-competitive conduct through alleged payment of
(PNC), the marketing of transactions similar to the PNC transac- contingent commissions to brokers and participation in illegal bid-
tions and related matters. rigging; (2) concealed that it used ‘‘income smoothing’’ products
As part of the settlement, the SEC filed against AIG a civil and other techniques to inflate its earnings; (3) concealed that it
complaint, based on the conduct of AIG primarily through AIGFP, marketed and sold ‘‘income smoothing’’ insurance products to
alleging violations of certain antifraud provisions of the federal other companies; and (4) misled investors about the scope of
securities laws and aiding and abetting violations of reporting and
Form 10-K 2006 AIG 19