AIG 2008 Annual Report Download - page 290

fiduciary duty in connection with the Series C Preferred Stock to be issued pursuant to the Fed Credit Agreement to
the trust created for the sole benefit of the United States Treasury. Plaintiff sought an order declaring that the
Series C Preferred Stock is not convertible into common stock absent a class vote by the holders of the common
stock to amend the Restated Certificate of Incorporation to increase the number of shares of authorized common
stock and decrease the par value of the common stock, an order declaring that AIG’s directors are breaching their
fiduciary duties in not seeking alternative or supplemental financing in advance of a stockholder vote on such an
amendment to the Restated Certificate of Incorporation, and damages. During a conference with the Court on
November 7, 2008, AIG’s counsel stated that any amendment to the Restated Certificate of Incorporation to
increase the number of authorized common stock or to decrease the par value of the common stock would be the
subject of a class vote by the holders of the common stock, and plaintiff’s counsel agreed that the plaintiff’s request
for an order granting this relief is moot. On January 12, 2009, plaintiff agreed to stipulate to dismiss its claims
against defendants and litigate only the matter of attorneys’ fees, which have been stipulated not to exceed
$350,000. On February 5, 2009, the Court approved a stipulation and order of dismissal entered into by the parties in
connection with the action.
2006 Regulatory Settlements and Related Matters
2006 Regulatory Settlements. In February 2006, AIG reached a resolution of claims and matters under
investigation with the DOJ, the SEC, the Office of the New York Attorney General (NYAG) and the New York State
Department of Insurance (DOI). AIG recorded an after-tax charge of $1.15 billion relating to these settlements in
the fourth quarter of 2005. The settlements resolved investigations conducted by the SEC, NYAG and DOI in
connection with the accounting, financial reporting and insurance brokerage practices of AIG and its subsidiaries,
as well as claims relating to the underpayment of certain workers’ compensation premium taxes and other
assessments. These settlements did not, however, resolve investigations by regulators from other states into
insurance brokerage practices related to contingent commissions and other broker-related conduct, such as alleged
bid rigging. Nor did the settlements resolve any obligations that AIG may have to state guarantee funds in
connection with any of these matters.
As a result of these settlements, AIG made payments or placed amounts in escrow in 2006 totaling
approximately $1.64 billion, $225 million of which represented fines and penalties. Amounts held in escrow
totaling approximately $338 million, including interest thereon, are included in other assets at December 31, 2008.
At that date, all of the funds were escrowed for settlement of claims resulting from the underpayment by AIG of its
residual market assessments for workers’ compensation.
In addition to the escrowed funds, $800 million was deposited into a fund under the supervision of the SEC as
part of the settlements to be available to resolve claims asserted against AIG by investors, including the securities
class action shareholder lawsuits described below.
Also, as part of the settlements, AIG agreed to retain, for a period of three years, an independent consultant to
conduct a review that will include, among other things, the adequacy of AIG’s internal control over financial
reporting, the policies, procedures and effectiveness of AIG’s regulatory, compliance and legal functions and the
remediation plan that AIG has implemented as a result of its own internal review.
Other Regulatory Settlements. AIG’s 2006 regulatory settlements with the SEC, DOJ, NYAG and DOI did
not resolve investigations by regulators from other states into insurance brokerage practices. AIG entered into
agreements effective January 29, 2008 with the Attorneys General of the States of Florida, Hawaii, Maryland,
Michigan, Oregon, Texas and West Virginia; the Commonwealths of Massachusetts and Pennsylvania; and the
District of Columbia; as well as the Florida Department of Financial Services and the Florida Office of Insurance
Regulation, relating to their respective industry-wide investigations into producer compensation and insurance
placement practices. The settlements call for total payments of $12.5 million to be allocated among the ten
jurisdictions representing restitution to state agencies and reimbursement of the costs of the investigation. During
the term of the settlement agreements, AIG will continue to maintain certain producer compensation disclosure and
ongoing compliance initiatives. AIG will also continue to cooperate with the industry-wide investigations. The
agreement with the Texas Attorney General also settles allegations of anticompetitive conduct relating to AIG’s
284 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)