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American International Group, Inc. Message Board

  • stakeholder_9999 stakeholder_9999 Apr 3, 2005 5:06 AM Flag

    Fraud in insurance and finance

    Fraud in insurance and finance

    The allegations against AIG are only the most recent leveled against corporations involved in insurance and finance. In the fall of 2004, Spitzer filed civil charges against the largest insurance broker in the country, Marsh & McLennan. At the time, Marsh was run by Hank Greenberg�s son, Jeffrey. As an insurance broker, Marsh does not sell insurance itself, but helps corporations purchase insurance from companies such as AIG and ACE Ltd. In return for fees from the companies seeking insurance, it is supposed to arbitrate a bidding process between the insurers so as to get the best insurance plans for its clients.

    According to Spitzer, however, the company ran what amounted to an insurance racket. Marsh was accepting fees not only from companies seeking insurance, but from the insurers as well. In return for fees from the insurers, Marsh would send companies their way. Marsh allegedly rigged the bidding process by getting friendly insurance companies to submit artificially high bids. The high bid meant that the contract would go to another insurer; however, in return for playing the game�and creating the appearance of a competitive bidding process�the insurance company would be favored the next time around.

    Two midlevel executives at AIG pled guilty for their role in the bid-rigging process. The civil charges filed against Marsh are still open. To avoid criminal charges, Jeffrey Greenberg was forced out of Marsh five months before his father resigned at AIG. The allegations of bid-ridding also involved ACE Ltd., which is run by another of Hank Greenberg�s sons, Evan. ACE has a lawsuit pending against it for allegedly providing kickbacks to Marsh.

    Putnam Investments, the mutual fund investment unit of Marsh & McLennan, agreed to pay a $110 million fine in April 2004 to settle charges that it allowed large investors to trade after market closing time, which is against regulations for mutual funds. This was part of a broader investigation led by Spitzer into the mutual fund industry.

    In the summer of 2003, Citigroup and JP Morgan Chase & Co. agreed to pay a combined $255 million to settle charges that the banks helped Enron disguise loans as revenues through a complex system involving nominally independent offshore companies. In 2002, the country�s largest banks were fined $1.4 billion for providing false advice to their investment clients. They were publicly boosting stocks that they privately derided�in order to keep stock prices of important banking clients from falling.

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    • Pal, you have a real problem with life!

    • From the NYTimes, Gretchen Morgenson

      Unlike Enron, the situation at A.I.G. is not remotely as dire. But the ownership stake by its subsidiary, the American Life Insurance Company, illustrates the problems that can result when a company has too much of its capital tied to its parent company's stock price.

      American Life is a life and health insurance subsidiary based in Delaware that has operated since 1921. The company, which writes insurance solely overseas, is A.I.G.'s sixth-largest stockholder.

      According to state regulatory filings, at the end of 2004 American Life's capital structure included a net position of 61 million A.I.G. shares. That stake was worth $3.9 billion then; American Life's surplus at the end of last year was $4.2 billion.

      Back then, the A.I.G. shares held by its subsidiary were valued at approximately $63.50 each.
      But now A.I.G. shares are trading at $50.95, down 19.8 percent. American Life's stockholding in its parent company has declined by $750 million. As a result, so have its capital and surplus.

      After taxes, assuming a 35 percent rate, American Life's surplus has fallen by about $500 million on a mark-to-market basis. That drop is the equivalent of 12 percent of its surplus.
      The problem is that regulators could decide that American Life Insurance's capital base needs to be shored up, and they could ask A.I.G. to replenish the money lost in the company's shares in recent days. That is extra pressure that A.I.G. does not need when it is facing credit downgrades, executive turnover and market turmoil.

      State insurance filings also indicate that American Life holds large equity stakes in private A.I.G. subsidiaries. Among its biggest stakes are those in AIG Financial Assurance Japan, AIG Life Ireland Ltd., Amplico Life, First American-Polish Life Insurance and Reinsurance Company S.A., and Unibanco Seguros S.A.

      Because these are private companies, American Life does not have to value the stakes at market prices.

      But if the continuing investigation into A.I.G.'s accounting results in restatements at any of these entities, the equity stakes held in them by American Life could decline.

      For now, Delaware insurance regulators are monitoring the situation at American Life. Michael L. Vild, the state's deputy insurance commissioner, said: "Its reserve and other regulatory oversight is done in the countries in which it does business.

      But we do monitor its financial solvency. If the erosion in the value of A.I.G. stock has an effect on the company's overall solvency, we'll take whatever steps are necessary."

      The steps could include requiring an infusion of capital to the subsidiary or requiring it to change its underwriting standards.

      A spokesman for A.I.G. did not return a phone call seeking comment.

      At the moment, the A.I.G. stock held by American Life is not included in the parent company's 2.64 billion shares outstanding. Instead, the shares are held in its treasury.

      Regulators, or for that matter the A.I.G. board, might also rethink the soundness of allowing American Life to tie up so much capital in the parent company's stock. If so, the shares could be liquidated, increasing A.I.G.'s share count by 2 percent.

      The decline in A.I.G.'s stock could be temporary, of course. A rebound could bring American Life's surplus back to previous levels.

      But the unfortunate fact remains: The aftershocks from the A.I.G. tremor are not likely to stop anytime soon.

      *****

      • 2 Replies to patches_0737
      • of the dimensions of the conspiracy, she's functioning as a cover-up girl.

      • "Unlike Enron, the situation at A.I.G. is not remotely as dire"

        Unlike Enron, AIG had practically perfected the art of fraudulant accounting for a longer period than enron, going back 14+ years.

        Hey, They "know money" after all. They also know why Greenberg's lawyers are commiting career suicide by shredding documents and why Greenberg is still unaccounted for by being out of the country.

        What's the over/under that, at his advanced age, he never again steps foot on US soil and hides away on a Tax sheltering captive island?

        AIG knows now and they've known all along. We're getting to know in piecemeal in order for the stock to be unwound orderly for the institutions. Fidelity Management and research doesn't want to lose up to 10 billion on AIG alone. They'd rather have the likes of their own Fidelity Magellan Fund lose its 2 billion and more instead.

        Fidelity owns 5 times as much as the little people invested in its fund. Once it owns less than the fund, watch the stock drop when the lid is fully blown on AIG.

 
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