Aig Scandal

In: Business and Management

Submitted By keansing96
Words 1899
Pages 8
On March 14, Maurice “Hank” Greenberg resigned his position as CEO of American International Group (AIG) amidst allegations of fraud and accounting manipulations at the world’s largest insurer. In an attempt to contain an escalating scandal, the company fired two more top executives on March 21, including the chief financial officer, Howard Smith.
Though not a household name, AIG is the 10th-largest corporation in the United States. It has close ties to the political establishment, counting on its board of directors William Cohen, the former defense secretary in the Clinton administration, and Richard Holbrooke, the former US ambassador to the United Nations.
Greenberg, who remains the chairman of the board of directors, has long been considered the titan of the insurance industry. In 1987, Ronald Reagan offered him the number-two position at the Central Intelligence Agency, presumably because of his international connections, particularly in Southeast Asia. He declined the nomination. Because of its enormous size and international reach, the investment firm Payne Webber wrote in 2000, “We have come to view AIG as almost the equivalent of a sovereign corporate nation, with its own diplomatic ties, economy, and head of state.”
The evidence of fraud—including recent revelations as well as information that has come to light over the past year—suggests that AIG arranged deals to manipulate financial figures, both its own and those of other companies. It is yet another indication of the vast extent of the fraud perpetrated by the highest levels of the American corporate and financial elite.
AIG’s purchase and sale of “nontraditional insurance”

The incident that led most directly to the current crisis involved a transaction in the fall of 2000 between AIG and General Re, a unit of Berkshire Hathaway, the investment group run by billionaire investor Warren Buffett.…...

Similar Documents

Ethics Aig

...Ethics Paper: AIG Introduction American International Group Inc. (AIG) is a multi trillion dollar insurance giant. AIG originated in China in 1919 and was perceived as a humble honest company (Gilani, 2008). Within the last few years AIG has been at the forefront of much debate about their financial decisions. A few attributed to AIGs demise was their accumulation of misplaced bets on credit default swaps. AIG also was ran by a CEO named Maurice R. Greenherg who grew the company aggressively and diversified the insurance company to a trillion-dollar balance sheet. AIG found its investments going bad when the housing market began to crash (AIG: What Went Wrong). Analysis AIG was the world’s largest insurance company. The company originally a humble honest company that was founded in China in 1919 and up until recently had a reputable reputation. There are many steps leading up to AIGs financial hardships such as their participated in global trade of derivatives and invested in mortgage-related investment portfolios and collateral calls on credit defaults (Actions Related to AIG). An associate company of AIG was writing insurance in the form of credit default swaps. These swaps offered buyers protection against losses on debts and loans of borrowers in the amount of $447 billion (Gilani, 2008). AIG also participated in collateralized debt obligations (CDOs) that mainly incorporated subprime mortgages and Alt-A mortgages, just to name a few. AIG used these premiums as...

Words: 668 - Pages: 3

Aig Fraud Essasy

...AIG Liquidity Crisis American International Group, Inc is an American insurance corporation that was founded in 1919 (Sjostrom, 2009). The company operates in over 130 countries. Founder, Cornelius Vander Starr, ran the company until 1968 when he turned AIG over to Hank Greenberg. At that time, AIG was a privately held corporation (How Hank Did It). Greenberg had been running AIG for 37 years, longer than any other U.S. major corporation CEO. HeGreenberg transformed the company into the largest insurer in the world, made AIG the number 9 company on the Fortune 500 list, and at the end of 2005 the company’s $850 billion of assets made it the fourth largest company in the U.S. (How Hank Did It). The company consists of general insurance, life insurance & retirement services, and financial services and asset management. The general insurance unit engages in commercial property, casualty, workers’ compensation, and mortgage guarantee insurance. The financial services unit leases capital for equipment and aircraft, capital market transactions, consumer finance, and insurance premium finance. The asset management division engages in several investment related services and investment products to individuals, institutions, and pension funds (Sjostrom, 2009). In February 2005, American International Group, Inc. was subpoenaed by Eliot Spitzer, New York state’s attorney general, for documents relating to accounting fraud having to do with transactions known as......

Words: 1616 - Pages: 7

Aig Fair or Foul?

...The Ethical Dilemma of AIG Fair or Foul? A matter of public opinion. American International Group (AIG) was established in 1919 by Cornelius Vander Starr in Shanghai, China. He became the first westerner in Shanghai to sell insurance to the Chinese. After turbulent times and the hostile takeover of the communist regime, he left for greener pastures in 1949 and ended up in New York City. While in New York, the company began to grow and prosper. I wide range of premium services was being offered and the future looked bright. The company went public in 1969. Fast-forward thirty-five years, no one could have prepared for what was about to happen. In 2005 an accounting scandal rocked AIG to the tune of $1.6 billion. Criminal charges were filed against many of the company’s top executives. The summer of 2008 was a time that began to send shockwaves around all of the world markets. Financial statements were disclosed and stock prices began to fall rapidly. On September 16, 2008 AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permitted firms with the highest credit ratings to engage in high-risk investment practices. Credit default swaps without depositing any form of collateral with their trading counter-parties. The Federal Reserve announced the creation of a secured credit facility of up to $85 billion to keep the company from completely collapsing. In exchange, the government would receive an 80%......

Words: 559 - Pages: 3

Aig Accouncing Scandal 2005

...Wei Kevin Luk Kevin.luk@stmartin.edu AIG’s “LOSs Reserve” accounting Scandal 2005 AIG’s “LOSs Reserve” accounting Scandal 2005 Introduction AIG, American International Group Inc., is one of the top multinational insurance corporations. AIG, with asset of 556 billion, provides insurance service for more than 150 different countries and it has over 630, 000 employees over the world. Even though AIG is such a giant corporation, it has encountered financial problems in the early 2000s. Under financial pressure and a lack of internal control, AIG have committed frauds resulting in several scandals. One of the accounting scandals was disclosed during 2005 which involved a material mis-statement due to false transactions during 2000. This scandal set to prelude leading the downfall of AIG in 2008. In this paper, I will analyze the cause, the transactions and finally effects of the scandal. The Accounting Scandal The Players The CEO of AIG was Maurice “Hank” Greenberg. Greenberg joined AIG in 1962 and led AIG for thirty eight years until his retirement in March 2005. Greenberg was not only the CEO, but also the chairman of the board of AIG. AIG also have several subsidiaries, which include National Union Fire Insurance Company of Pittsburgh (NUFIC) and Hartford Steam Boiler Inspection (HSB). Their financial information are consolidated in AIG’s financial statements. The scandal also involves another corporation General Re Corporation. General Re......

Words: 1927 - Pages: 8

Aig Report

...AIG continued to streamline its core insurance operations and restructure businesses, over the past few years, to enhance capital allocation and operating leverage. For this, AIG has been using the proceeds gained from the disposition of redundant businesses along with earnings from its ongoing business operations. The gradual recovery in the economy and equity market, post the downturn in 2008, has helped AIG to recoup the value of its investments and dispose of its redundant and risky businesses at attractive valuations. This in turn has helped in consistent improvement of the financial leverage along with the reduction in interest expenses. Consistent payoffs along with strategically divested assets improved the operating leverage and led to an operating cash flow of $3.95 billion in the first nine months of 2013, which surged from $3.68 billion in 2012 and an outflow of $81 million in 2011. Moreover, reduction in debt by $6.27 billion in the first nine months of 2013 from 2012-end level, through its liability management initiatives, helped improve debt-to-capital ratio to 17.6% at the end of Sep 2013 from 20.5% at 2012-end and about 31% at 2010-end. The redemption of notes worth $500 million in Sep 2013 will further improve the financial leverage. At the end of Sep 2013, AIG s DIB had excess liquidity worth $2.9 billion, while majority of DIB s debt is scheduled to mature in the next 5 years, thereby enhancing capital flexibility and buoyancy for long-term growth. Going......

Words: 785 - Pages: 4

Fall of Aig

...over as CEO. According to the numbers, the company had brought in over $1 billion that year. In 2002, it came out that AIGFP had helped conceal the bad assets of PNC Financial services by setting up a “special purpose entity” to undertake the assets. By 2004, AIG had paid an $80 million fine for helping conceal these bad assets. Later in 2005, rumors about bad accounting practices were going around and Hank Greenberg stepped down as his role of CEO. When he did this, credit-rating agencies dropped AIG’s credit rating from AAA to AA. This required AIGFP to have over $1 billion in collateral for their credit default swaps. After taking a second look at the portfolio, it became alarming that many of the credit-default swaps had to deal with subprime mortgages, meaning that the default risk was large if the housing market went under. By the end of 2005, Cassano had wisely chosen to stop dealing in credit-default swaps, but he could not undue the $80 billion of collateralized debt. However, Cassano stuck to the idea that they could he could not see how they could lose anything on these investments. In August 2007, the housing market plummeted and companies, starting with Goldman Sachs, required collateral from AIG that was insuring the mortgage backed securities. By November, AIG’s stock prices had plummeted 25 percent, and AIGFP recognized a loss of $352 million. Even with this, Cassano and Sullivan still tried to convince investors that everything was alright. ......

Words: 3262 - Pages: 14

Aig Bailout

...Can We Expect A Regulated CDS Market? Derivatives Project Xilin Yang (Celine) Introduction The article introduces credit default swaps and explores the problems of the credit derivatives. By analyzing the AIG’s bailout, the article describes the regulation gap in the CDS market and states the regulation reform after the crisis. Part I is background, generally introduces the Wall Street crisis. How it happened? What consequence it has? Part II is mainly about AIG’s CDS business: how AIG got involved in the crisis and why the biggest world insurance company suddenly collapsed. Part III is about credit default swaps: definition, construction, and problems. Part IV is concerned on the regulation reform after AIG’s failure. Wall Street Crisis Speaking of the Wall Street crisis, people all know it proceed from subprime crisis. The relatively low interest rate prompts banks to issue large amount of housing loans. To transfer default risk embedded in those loans, investment banks package those loans and mortgages into student loans, car loans and credit card debt, which form the so-called collateralized debt obligation (CDOs). All these derivatives depend on the housing loans. In the era of low interest rates, house prices rise rapidly and promote the rapid development of the housing loans business. With steady stream of housing loans into financial derivatives products, different ranks of products are packaged to sale out. The good view of economy makes those potentially......

Words: 2738 - Pages: 11

Scandal

...Lehman Brothers Scandal Corporate governance is defined as a system that control and direct a corporation (Shleifer 1997). Governance arrangement specifies dissemination of responsibilities and rights among different contributors in the corporation like financial managers, board of directors and shareholders. It also specifies procedures and rules of decision making in corporate affairs. Besides, corporate governance has plays its role to encourage organization to produce value through innovation as well as development process. Lehman Brothers would be further analyze and discussed in term of accounting scandal below. Lehman Brothers was the fourth largest United States investment bank when it collapsed and this has affected 25,000 employees worldwide. Thus, the significant factors that cause this scandal of corporate failure to be happened would be analysed below. Firstly, Lehman has high degree of excessive debt and leverage which mean ratio of total assets to shareholders’ equity in 2007. Furthermore, it has a huge mortgage securities portfolio that cause this corporate to becoming expose to declining market conditions (Chiquier 2004). Besides, it has the largest debt of $619m, which is the largest bankruptcy filling in history which surpasses Enron. Lehman’s shares decreases a huge amount of 48% concerning it would be the next firm to fail in its corporate governance as it is the second largest underwriter of mortgage-backed securities. Consequently, the declining......

Words: 572 - Pages: 3

Aig Scandal

...Group (AIG) and American International Group Financial Products (AIGFP) were directly in the center of the collapse. Within AIG and AIGFP, a few managers stood out when it came to involvement in the financial scandal. Maurice “Hank” Greenberg is one manager that undeniably stands out. He was the founder and Chief Executive Officer of AIG until 2005. He micromanaged his workers and gave them little freedom (Bandler, Boyd, and Burke). Obviously, his managing tactics influenced the demographics of AIG tremendously. Joe Cassano, another core manager, was the CEO of AIGFP. He implemented credit-default swaps (CDSs) and oversold them, resulting in AIG having to file for bankruptcy because it couldn’t pay the buyers of these CDSs back (Serwer and Sloan). While these two men were heavily involved in the cause of the collapse, they raised many questions regarding the fact that AIG’s questionable decisions passed regulations and audits. Many people have looked into how AIG and AIGFP didn’t cause fuss while they were getting audited. How did they pass all of these regulations without any problems? It has been noted that Greenberg had previous relations with a lot of so-called “big-shots” in the business world that could have had an impact on the results of these audits and regulation checks (Cass Business School). This may or may not have influenced the result of AIG during 2007 and could have potentially prevented the financial crisis if regulators did end up lying about......

Words: 2991 - Pages: 12

Scandal

...run-on bank scenario. If Enron’s customers were willing to continue and use the company’s service, Enron would have been able to avoid bankruptcy. Enron might have had large debts and obligation but they had also large revenue, once Enron lost their credibility they also lost their customers, as they were not willing to continue to use their services. Andersen was a large and established firm, and losing a company like Enron, as their client would not had led to their end, but the company lost their credibility in the eyes of their clients. As a result of that, many clients decided to terminate their contracts Andersen. Following the scandal with Enron, Andersen lost a huge amount of customers, which led the to declare bankruptcy. There are different reasons why so many companies fired Andersen. A strong opinion is that once the scale of the scandal was known, the clients felt betrayed; it is sort of un-American to do such thing. Clients did not want to be involved with a company that causes so many people to loss their job, and causes much harm to many more. Lack of integrity was linked to both Enron and Andersen. Once a perceived lack of integrity is attached to a person, it is really hard to recover from that; it causes irreparable damage. If a lack of integrity is linked to a person, all of his actions will be looked over with suspicions. For example if a tax accountant is caught filling his own taxes unlawfully, any other tax return that he will work on will be......

Words: 2037 - Pages: 9

Aig Accounting Scandal

...AIG / Gen Re 2004 ACCOUNTING SCANDAL Table of Contents I. Introduction 3 II. The Companies and Participants 4 III. The Setting 5 IV. Aftermath 9 V. Conclusion 10 I. Introduction AIG’s accounting scandal is one of the biggest accounting scandals in the first decade of 21st century. In 2004, SEC discovered that AIG rewrote its financial reports for years from 2000 to 2004, with support from Gen Re, one of the biggest reinsurers in the world. This scandal led to reduction of AIG’s net income in 2004 of $1.32B, and total settlement of $1.6B from government. AIG was also accused of violating 16 counts of the criminal code. II. The Companies and Participants AIG is the world’s largest insurance and financial services company. AIG, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities worldwide. In 2007, AIG has 93,000 employees, business in 130 countries, $6.2 billion net income, and $59.8 billion premium written. Gen Re Corporation, established in 1921, is a Connecticut corporation with its principal corporate offices located in Stamford, Connecticut. Gen Re became a wholly-owned subsidiary of Berkshire Hathaway Inc. on December 21, 1998. It is one of the largest reinsurers in the world. In 2007, Gen Re has $6.0 billion premium written. Hank Greenburg, CEO of AIG, was born in 1925. He admitted to NY Bar in 1953, and joined AIG 1962. In 1968, he was named CEO. He has led AIG for 38 years, until he stepped down...

Words: 1565 - Pages: 7

Aig Incomplete

...Title: American Insurance Group (AIG) Group Name: Date: Executive Summary: Company Background American International Group, Inc. (AIG) is a world leader in insurance and financial services. It is a holding company for a network of subsidiaries primarily engaged in insurance and insurance-related activities, including property, casualty, life, financial services, retirement savings products, asset management, and aircraft leasing. It is headquartered in New York City, and operates in more than 130 countries and jurisdictions. In 2006, AIG had sales of $113 billion and 116,000 employees (Saporito, 2009). According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world. Its common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. AIG faltered in America’s sub-prime mortgage crisis. It had traded heavily in credit default swaps and could not meet its obligations. In that case, United States government came to its rescue with an $85 billion bailout on September 16, 2008. As of March 2009, AIG has taken a major step toward cleaning up its image by reorganizing its insurance units under American International Underwriters. It is the foreign general insurance segment of AIG. AIU and its subsidiary brands are now distinct from AIG (National News, 2009). The holding company, itself, is currently undergoing rebranding that includes a new name, which is expected to be revealed in the......

Words: 1258 - Pages: 6

Aig Case

...AIG: From Bailout to Bonuses (2008) Based on a paper by: Paige Vandermyn & Holden Canty Summary by: Andrew F. Roberts During 2008's "too big to fail" bailouts exercised by the federal reserve, many struggling multi-national companies were awarded cash in hopes of avoiding bankruptcy. One company deemed simply too big to fail was the American International Group, Inc. (AIG for short), which provides insurance for individuals and businesses. The company, which would have almost certainly been forced into bankruptcy if not for the bailout, received hundreds of millions of dollars to keep from drowning. However, in an utterly shocking series of events, the company paid $218 million to top executives in bonus money. In a completely unethical fashion, the company used taxpayer bailout money to fund vacations and private jet flights to the executives who many blamed for causing AIG's financial troubles in the first place. Additionally, many senior employees were flown to California for a "retreat" including spa treatments and golf outings. This retreat cost over $400,000 dollars. By the end of 2008, AIG had received over $100 billion in bailout money. Unfortunately, the general public was not sure if the money was going toward improving business of simply paying for luxuries of the organization. These actions by AIG completely ignored each and every theory related to the study of ethics. In regards to the individualistic theory of ethics, AIG seemingly followed...

Words: 660 - Pages: 3

Scandal

...AIG, American International Group Inc., is one of the top multinational insurance corporations. AIG, with asset of 556 billion, provides insurance service for more than 150 different countries and it has over 630, 000 employees over the world. Even though AIG is such a giant corporation, it has encountered financial problems in the early 2000s. Under financial pressure and a lack of internal control, AIG have committed frauds resulting in several scandals. One of the accounting scandals was disclosed during 2005 which involved a material mis-statement due to false transactions during 2000. This scandal set to prelude leading the downfall of AIG in 2008. In this paper, I will analyze the cause, the transactions and finally effects of the scandal. The Accounting Scandal The Players The CEO of AIG was Maurice “Hank” Greenberg. Greenberg joined AIG in 1962 and led AIG for thirty eight years until his retirement in March 2005. Greenberg was not only the CEO, but also the chairman of the board of AIG. AIG also have several subsidiaries, which include National Union Fire Insurance Company of Pittsburgh (NUFIC) and Hartford Steam Boiler Inspection (HSB). Their financial information are consolidated in AIG’s financial statements. The scandal also involves another corporation General Re Corporation. General Re is a subsidiary of Berkshire Hathaway, Inc., an investment group run by the billionaire Warren Buffet. General Re also has subsidiaries all over the world and......

Words: 281 - Pages: 2

Aig Bankruptcy

...American International Group (AIG) bankruptcy The bankruptcy of the American International Group caused a large crash in the US economy after depression, since AIG are filing bankruptcy and are asking the help from the congress for the bailouts. AIG is considered one of the largest companies in the insurance market and it is almost bankrupt. It had already filed bankruptcy once before and still could not recover and need more money. One thing that can be obtained from the article is that there has to be some amount of transparency into the operations of the firms who are big like AIG, I think the major reason behind all this trouble was that the operations were not disclosed to the public and therefore the authorities got a chance to manipulate them. This way they covered up one time the problems in the form of first bailout, but because the problems were quite large and could not be solved, they went bankrupt again. I think this all would have not happened if the first bailout was disclosed to public and common stakeholders. I also somewhere think that the authorities misused their rights. I disagree with the way they handled the first bailout request. I feel that the authorities should have taken the legal actions and let the courts decide what to do. It is not acceptable for me ethically that some big issues are tried to be covered up. In addition to that, I also think that oligopoly may not be useful any more in the economy,......

Words: 313 - Pages: 2