According to Reuters, AIG Chairman and CEO Maurice “Hank” Greenberg is under investigation by NY Attorney General Eliot Spitzer. The story, to be published in the March 7 issue of Fortune, identifies the problem as Greenberg’s possible promotion of the “income smoothing” products that were the cause of a previously-assessed $126 million fine paid by AIG.
The Reuters article states:
“Insurers have offered products akin to business loans to a broad swath of corporations, catching the eye of regulators who worry that these products smooth earnings and mask the true value of the borrowers. Rather than turning to a bank for a traditional loan or selling securities to raise cash, a company borrows money from its insurer. The loan is repaid in the form of increased premiums for traditional insurance.”
There are a variety of other products that also provide the same type of benefit to public companies. If there is any investigation (neither AIG nor the AG’s office would comment) my sense is the investigation is looking into not just the “inflated premium” products but other financial chicanery as well.
Until now, no public company had survived an indictment. It appeared that AIG had weathered the storm, but once the investigators start digging, there is no telling what they can come up with.
Feb
26
