SEC Charges Hank Greenberg on AIG Accounting Violations

You mean we had to bail out AIG because Hank Greenberg was making misrepresentations about the company’s profits that enabled it to keep blowing up the bubble?

The Securities and Exchange Commission today charged former American International Group Chairman and CEO Maurice "Hank" Greenberg and former Vice Chairman and CFO Howard Smith for their involvement in numerous improper accounting transactions that inflated AIG’s reported financial results between 2000 and 2005. The SEC alleges that Greenberg and Smith are liable as control persons for AIG’s violations of the antifraud and other provisions of the securities laws. Smith also is charged with direct violations of the antifraud and other provisions of the securities laws.

The SEC alleges that Greenberg and Smith were responsible for material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets. According to the SEC’s complaint, Greenberg publicly described AIG as the leader in the insurance and financial services industry with a history of delivering consistent double-digit growth. However, AIG faced numerous financial challenges under Greenberg’s leadership that were disguised through improper accounting.


The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges the defendants with responsibility for the following improper accounting transactions:

  • Sham reinsurance transactions to make it appear that AIG had legitimately increased its general loss reserves.

  • A purported deal with an offshore shell entity to conceal multi-million dollar underwriting losses from AIG’s auto-warranty insurance business.

  • Economically senseless round-trip transactions to report improper gains in investment income.

  • The purported sale of tax exempt municipal bonds owned by AIG’s subsidiaries to trusts that AIG controlled in order to improperly recognize realized capital gains.

And do you want to guess how much a first-hand role in the bubble costs a gazillionaire? $15 million.

Greenberg and Smith agreed to settle the SEC’s charges and pay disgorgement and penalties totaling $15 million and $1.5 million, respectively.

Hmmm. Greenberg pays $15 million, taxpayers pay over a hundred billion, and Eliot Spitzer remains sidelined because he (admittedly, utterly hypocritically) slept with a high priced sex worker.

  1. Funnydiva2002 says:

    Golly and gosh! No one could have predicted!

    Thanks for the post, though, EW.


  2. pdaly says:

    Imagine the oversight FDL could do with $15 million.

    SEC doesn’t seem to care about the money. Wonder if we could convince them to drop it off here.

  3. slide says:

    woops hit the wrong button….anyway it is disgusting the SEC would let Greenberg off with such a light penalty. Greenberg has been involved in questionable activity since 1984 that I know of. I litigated a case with him where he was the prime actor in a serious fraud for 15 years. I have so much evidence on him it would make a normal person sick but no one ever gave a shit. He is untouchable. If Spitizer [who I cooperated with on my evidence] could not get Greenberg no one can.

    • foothillsmike says:

      Hey slide why don’t you team up with Spitzer and file a class action on behalf of all American citizens for the havoc he has wreaked on the economy.

  4. Peterr says:

    Let’s put that $15 million fine in perspective.

    The NYT, on June 28, 2005, noted the following from an AIG proxy statement filed before their August 2005 stockholders meeting:

    Under the Starr International long-term pay plan, Mr. Greenberg received $10.1 million in 2004; that came on top of $1 million in salary and a bonus of $8 million from A.I.G.

    The compensation given to executives under the Starr plan is not paid in cash, the filing noted, but in A.I.G. shares that the executives stand to receive when they retire from the company at age 65. The value of the awards for 2004 is based upon the number of A.I.G. shares allocated under the plan multiplied by the stock’s price as of Dec. 31, 2004.

    That’s $19.1 million in 2004. He got fined less than one year’s compensation for his actions.

    That’ll really be a deterrent to greedy CEOs.

  5. siri says:

    No one condones Spitzer’s private antics. However, we sure could use him on other fronts.

    (and hell ya! i take credit for puns when and wherever I can get them.)

  6. Hugh says:

    The SEC is a business friendly paper tiger. What is described in the complaint is how Greenberg effectively cooked AIG’s books. He should be in a jail cell.

  7. DieselDave09 says:

    Give him his billion dollar bonus and send him home. That is standard punishment for corporate crime, is it not?

  8. maryo2 says:

    Is this one of those scenarios where a person(s) who has been injured by his actions has to sue him? I know that some birther suits have been dismissed because the person bringing the suit had not been injured by the location of Obamas birth.

  9. Loo Hoo. says:

    What??? I was waiting to read how many years they’d get if convicted, and hoping they’d get the Madoff treatment.

  10. Hugh says:

    The SEC can not bring a criminal case on its own. This must be done in conjunction with the DOJ. The fine here was piddling given the nature and severity of the offense and the exposure it has produced for US taxpayers. The question is will the DOJ mount a criminal prosecution.

    • readerOfTeaLeaves says:

      For all the infuriating reports that I’ve read at EW’s the past few years, this is the first time that I have ever felt — after reading a post — as if someone just rear-ended me going 70 mph.

      This is so far beyond disgusting and contemptible I don’t have words for it… or maybe I do: “Too. F*cking. Goddamn. Big. To. Fail.”

      Man, if this doesn’t make Elliott Spitzer look like a veritable no-bullshit, justice-dealing prince, nothing ever will.

      As for the SEC… beyond reprehensible.
      I cannot believe what a contemptible, derisive, bitter joke this is.

      This is the ‘fuck you’ that ‘Too Big To Fail’ sneers when it drives off after ramming you, yours, and the entire economy.

  11. brendanx says:

    A profane scrivener like you would never understand the immeasurable damage to his reputation this represents. Some things are just worth more than money.

    • readerOfTeaLeaves says:

      Oh, yes, forgive my modest tirade — Hank Greenberg, Paragon Of Virtue, Underwriter Of Non-Profits, Generous Donor, Abundant Contributor (assuming it’s all tax-deductible) has had his illustrious reputation sullied just a tad.

      Oh, who am I, a lowly scrivener?
      Who am I, a mere ‘blog reader’ who seeks to engage in economically productive, innovate activities that create wealth, rather than — as Hank does — simply ‘make it up,’ and thieve billions?

      Clearly, I am a little, tiny person of humble means, and no great station.

      How dare I be so obscene about a Master of the Universe, eh?

      Forgive me, o thou fellow scrivener.
      Be patient, please.
      I will soon come to my senses and create an altar upon which I shall offer my best veggies, my most sublime pumpkins, and a shred or two of my IRS submission on the Altar of Supplicant Humility to the Great and Mighty, the Ineffably Radiant Mr. Greenberg.

      Who am I? A mere worm, sullying the reputation not only of the Mighty Greenberg, but also of that exemplar of bureaucratic excellence, the SEC?

      I humbly beseech thou mightest overlook my obscene scrivenings.

      brendanx, thou has brightened my day ;-))

  12. Slothrop says:

    Agreed to settle — let’s see, did they admit guilt or is it one of these deals where the oligarch is allowed off without admitting squat?

    $15 million? Hell, he sells one of his yachts or private jets and he’s more than covered.

    Pocket change that his butler keeps for him to tip the rest of the help.

  13. orionATL says:

    let’s make an analogy.

    greenberg costs this society lots more than $14 mill, but the obama SEC says he must pay only $14 mill to be free.

    great deal for greenberg, no?

    then there’s this from the nytimes:…..038;st=cse

    same thing for the drug companies.

    a gift from the obama administration.

    drug companies collect what i would guess is hundreds of Billions of dollars in profits from persons like you and me and our insurance companies.

    but their “liability”, in the health care “reform” movement, has been limited to $80 billion by an agreement with the white house.

    this seems like a sweetheart deal.

    whether greenberg, the individual,


    the medical drug industry, the collectivity,

    those at the top of the american political midden get good deals.

    the rest of us buried in the garbage below get our interests ignored.

    could this pattern be changed?

    could it be changed if our prez, obama, decided to mount an education campaign involving MANY speeches in many venues designed to educate americans to the specifics of health care “reform”?

    or is it that buttercup obama just doesn’t have any clout except that of the polls of a new prez and, therefore, dares not risk what ephemeral clout he has by going out among the citizens and conducting an educational campaign?

    • flyarm616 says:

      Orion..that is probably why i am seeing commericals ..the oppiste of Harry and Louise ..with a man and woman saying how good this reform plan is ..on the Philly networks..what i noticed was who it was paid for by,,..all the big Pharm groups!!

      I was watching because I thought it would be paid for by the DNC or Move-On, or the usual dem groups..but nope..the list was all big Pharm groups.

      I saw the commercial back to back a couple nights ago while watching a normal Tv show..

      I haven’t seen it again, as I don’t watch much TV..but to see it twice on one primetime TV show had me wondering..what deal was concocted between the Obama White House and the big Pharm boys??

      I got my answer in your post..and the NYTIMES article you posted.

    • flyarm616 says: is a little I pulled up that you might find interesting..
      Obama’s False Friends of Health Reform
      Submitted by Wendell Potter on July 1, 2009 – 8:29am.
      If you watched the president’s televised Q&A on ABC last Wednesday night, you probably noticed that one of the people in the audience was Ron Williams, the chairman and CEO of Aetna, Inc., the nation’s third largest health insurer, and currently one of the most profitable. But there are a few things that you should know about Williams.

      Back in the ’90s, Aetna set out on an acquisition binge in its quest to become the biggest health insurer in the country. It got there by the end of the decade after spending billion of dollars for several competitors. By 1999 it had 21 million health plan members, the most any insurer had ever had at the time.

      But, as often happens after buying sprees, Aetna soon came down with a bad case of buyers’ remorse. As it turned out, some of the customers it had paid top price for were not as profitable as Wall Street analysts and the big institutional investors who owned most of Aetna’s stock expected. When they took a closer look at what Aetna had bought, investors started deserting the company in droves. As a result, the company found its stock price in a free fall.

      As the Wall Street Journal reported on August 13, 2004, Aetna’s pretax profits as a percentage of revenues began falling dramatically after peaking at about 12 percent in 1998. By 2001 the company was a basket case as far as Wall Street was concerned. It had to do something, and fast.

      Probably the most important thing it did to turn itself around was recruit Williams from rival WellPoint, the ambitious for-profit company that was gobbling up Blue Cross and Blue Shield plans from coast to coast.

      A final point about Ron Williams: Not only are he and his fellow CEOs trying to kill the idea of a public health insurance option — a central part of candidate Obama’s health care proposal — but he is the leading advocate of an idea Obama rejected and which differentiated his proposal from Hillary Clinton’s — the imposition on all of us of an “individual mandate.” Many insurance executives were wary of such a mandate because they don’t like the government mandating anything, especially those pesky state mandates that force them to include certain benefits in the policies they sell. Advocates of an individual mandate eventually brought the skeptics, including many of AHIP’s board members, around to their way thinking by persuading them that insurers could make billions more in profits if every American had to buy an insurance policy from them. Now you know the real reason behind AHIP’s shift from neutrality on the issue to full-fledged support. It’s all about the money.


      now lets look at this:

      Krugman says health reform ‘may well fail’ if Obama can’t inspire troops – Business Week blares: ‘HEALTH INSURERS HAVE ALREADY WON’
      By: CHRIS FRATES & CARRIE BUDOFF BROWN & MIKE ALLEN on August 7, 2009 @ 6:29 AM

      SIREN — Business Week’s cover is “WHY HEALTH INSURERS ARE WINNING: The industry, deftly maneuvering behind the scenes in Washington, prepares to profit from health reform,” by Chad Terhune and Keith Epstein.

      The online headline is even blunter — “THE HEALTH INSURERS HAVE ALREADY WON”: “As the health reform fight shifts this month from a vacationing Washington to congressional districts and local airwaves around the country, much more of the battle than most people realize is already over. The likely victors are insurance giants such as UnitedHealth Group, Aetna, and WellPoint. The carriers have succeeded in redefining the terms of the reform debate to such a degree that no matter what specifics emerge in the voluminous bill Congress may send to President Obama this fall, the insurance industry will emerge more profitable. Health reform could come with a $1 trillion price tag over the next decade, and it may complicate matters for some large employers. But insurance CEOs ought to be smiling. …


      Diagnosis: Reform…..eform.html

      Starting in the 2008 election cycle, the health sector has given more money to Democrats–who had seized control of Congress in 2006–than to Republicans, according to the nonpartisan Center for Responsive Politics. This was the first time since the 1992 election cycle, right before the Clinton administration’s failed health care reform attempt, that the health sector made Democrats its financial darlings.

      In the 2008 election cycle, the sector gave $90.7 million, or 54 percent of the total, to Democratic candidates and party committees, compared to $76.6 million to Republicans. That difference is even more pronounced in the first three months of 2009, when Democrats collected 60 percent of the total $5.4 million in contributions*. Obama, who made health care reform a large part of his presidential election platform, brought in $18.8 million from the health care sector in the 2008 election cycle–far more than any other presidential hopeful. Money follows power as the industries ride the tides of Obama-styled change.

      Health providers, insurers and pharmaceutical companies have taken multiple approaches to winning over the federal lawmakers shaping the legislation. The health sector boosted its campaign contributions compared to the last presidential cycle, to $167.7 million in 2008 from $123.7 million in 2004. The various health industries have also steadily increased their lobbying efforts, from $448.1 million in 2007 to $484.4 million in 2008. So far this year, the sector has paid lobbyists $126.8 million to do its bidding on Capitol Hill. And those expenditures will only increase as the chairs of the five main committees working on health care legislation continue to iron out the details: Will the plan include a government insurance option? Will Congress mandate that all individuals, including the 47 million that are currently uninsured, purchase health insurance? And where will the money come from to pay for the reforms? The health sector–which includes some industries that are diametrically opposed to one another in their answers to these questions–eclipses all other sectors but the financial sector in lobbying spending since 1998, putting $3.4 billion into its efforts.

  14. orionATL says:

    on a completely different topic, one involving media conduct-

    go to the wapo front page, go to the search bar

    enter “justice samuel alito”

    and see what you get.


    • readerOfTeaLeaves says:

      Well, I got 53 hits at WaPo, although the page has a lot of ads — including one that looks like a Google ad for whitepages (find out his address and phone number, etc). Personally, I have zero interest in knowing where he lives, and God forbid that I ever have to speak to the man by phone or any other way. I’m just not interested in searching out ‘famous’ people, so it does seem like a bizarre thing to have at the top of the search results (!).

      The NYT appears to have the same kind of Google ad at the top of the list of search hits for ‘justice samuel alito’. But NYT lists 1910 hits for that search term.

      Here’s my hunch; it comes from too damn many hours spent on computers… the ‘hits’ rely on indexing. If someone who wrote an article didn’t explicitly tag it with ‘justice samuel alito’, it may not be pulling up.

      So either the NYT writes more about ‘justice samuel alito’, or else they do a much better job of marking up (’tagging’, or ‘indexing’) the terms and phrases used in their articles that the WaPo does…

      Hope this explanation makes sense.


      As for Greenberg… what a piece of work.
      It’s hard to watch someone participate in looting an entire nation, and get away with the merest, slightest hand slap. In fact, more of a ‘hand tap’ than a slap.

      Alito, no doubt, views Greenberg as some kind of capitalist genius.

  15. orionATL says:

    go to the times and try the same thing.

    what am i missing?

    why won’t info about alito show up?

  16. Gitcheegumee says:

    Goldman Sachs Pays Big Fines, Escapes Jail Time « Culture of Life

    NewsMay 13, 2009 … Goldman Sachs pays huge fine in order to avoid criminal prosecution over their noxious subprime business deals. I hoped to see GS executives ……/goldman-sachs-pays-big-fines-escapes-jail-time/ – Cached – Similar

    Merrill, Goldman, Deutsche Bank in ARS settlement – MarketWatchAug 21, 2008 …
    DB pays $15M fine on $1B buyback. Goldman pays $22.5M fine on $1.5B

  17. flyarm616 says:

    Did they get their bonus’es?..

    Are they the guys down the road (on my, for some, vacation island)..on their Yacht’s every weekend drinking martini’s and laughing??

    I Guess they liked my tax dollar bonus..because they are having fun on the weekends!!

  18. Gitcheegumee says:


    Aug. 7 (Bloomberg) — American International Group Inc., the insurer rescued by the U.S. government, reported its first profit in seven quarters as investment losses narrowed.

    Second-quarter net income of $1.82 billion, or $2.30 a share, compares with a net loss of $5.36 billion, or a split- adjusted $41.13, a year earlier, New York-based AIG said today in a regulatory filing.

    The results may ease pressure on Robert Benmosche, AIG’s fifth chief executive officer since 2005. The former MetLife Inc. head, who replaces Edward Liddy next week, has to dismantle AIG to repay loans within a $182.5 billion bailout. The insurer posted more than $100 billion in net losses driven by failed housing market bets in the six quarters ended March 31.

    “This buys him more time because its shows they’re getting some traction,” said Haag Sherman, who helps oversee $7.3 billion as chief investment officer of Houston-based Salient Partners. “He can use the operating profit to show that they have good assets and they just need more time to divest them in an orderly fashion to get the best prices for shareholders and the U.S. government.”

    Read more:…..anP…

  19. Gitcheegumee says:

    Robert Benmosche, AIG’s fifth chief executive officer since 2005. The former MetLife Inc. head, who replaces Edward Liddy next week,———-

    A little “aside” about Liddy.

    Liddy was named by Paulson to spearhead AIG last fall.

    Liddy was ON the board of Goldman Sachs at the time of the appointment.

    And interestingly enough ,Liddy had been CEO of Allstate Insurance during Hurricane Katrina. LOTS of lawsuits in disputes over denial of coverage.

    What has been mentioned very little was the nexus between the Dubai Ports Deal and AIG a few years back .

    I always wondered how much AIG may have lost during that hurricane season,in relation to its ports holdings.

    And if the ports were part of the collateral held by AIG that prompted the government to intervene with such financial largesse.

    I will post link to AIG and Dubai Ports deal.

  20. Gitcheegumee says:


    Dubai Sells U.S. Port Facilities To AIG – Forbes.comDec 11, 2006 … Controversial operations will remain, as always, with British-based P&O Ports, though ownership changes.…/dubai-p… – Cached – Similar

    BBC NEWS | Business | Dubai firm sells US ports to AIGDec 11, 2006 … Dubai Ports World agrees to sell its six US ports to an American firm after politicians voiced fears over security. – Cached – Similar

    Dubai Ports to sell U.S operations to AIG unit. Original deal sparked furor after Congress raised national-security concerns ……..all… – Cached – Similar

  21. orionATL says:

    flyarm616 @30

    you’ve done extraordinarily useful research and i appreciate your making it available to us.

    for myself, i only go from what i sense about politics; i have little specific personal knowledge of the sort you have made available with this comment.

    your comment fills in a big why-is-this-happening-to-us gap and leads us toward more precise questions about where the hell are we being herded to, in terms of health care.

    thanks for the sharp cites and insights.