Aig Scandal
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THE INTERNAL CONTROLS AND
FINANCIAL ACTIVITIES THAT LED TO THE BAILOUT OF OUR NATION’S
LARGEST INSURANCE COMPANY
By: Monte Schwartz
PREFACE Anyone who watches TV has most likely seen the American International Group (hereinafter AIG) commercial with the little boy who walks into his parent’s room while they are sleeping. When his mother asks if he had a nightmare, he says “no” and that he’s worried about his parent’s financial future. After a twenty-second spiel about his worries, the father says, “Buddy, we’re with AIG” and he goes, “Oh!” and walks out of the room and (assuming) back to his bedroom.[1] AIG, established as a Delaware corporation in 1921 by Maurice “Hank” Greenburg, is primarily engaged in insurance-related and financial activities in the United States and European countries (over 130 combined total); including but not limited to home insurance, car insurance, life insurance and various investments. Imagine that this boys parents’ discover one day with their financial planners that they lost all of their investments and insurances in which they paid dearly. The parents had agreed to make an investment so they and their children could have a secured future protection against market risks. Well, it became a reality for many Americans. This devastating loss left many taxpayers with misappropriated assets along with a burden to pay the “bill” for the bailout of AIG.
PART I: HOUSING MARKET SCANDAL: VIOLATIONS IN BUSINESS OPERATIONS
To understand the accounting scandal of AIG, one must first understand its business transactions and operations leading up to the SEC investigations. In 1993, President Bill Clinton signed into law the Omnibus Budget Reconciliation Act, commonly known as the OBRA-93 or the Deficit Reduction Act. Part XIII, is our primary focus, the Revenue Reconciliation Act which allows limitations on executive compensations by limiting
THE INTERNAL CONTROLS AND
FINANCIAL ACTIVITIES THAT LED TO THE BAILOUT OF OUR NATION’S
LARGEST INSURANCE COMPANY
By: Monte Schwartz
PREFACE Anyone who watches TV has most likely seen the American International Group (hereinafter AIG) commercial with the little boy who walks into his parent’s room while they are sleeping. When his mother asks if he had a nightmare, he says “no” and that he’s worried about his parent’s financial future. After a twenty-second spiel about his worries, the father says, “Buddy, we’re with AIG” and he goes, “Oh!” and walks out of the room and (assuming) back to his bedroom.[1] AIG, established as a Delaware corporation in 1921 by Maurice “Hank” Greenburg, is primarily engaged in insurance-related and financial activities in the United States and European countries (over 130 combined total); including but not limited to home insurance, car insurance, life insurance and various investments. Imagine that this boys parents’ discover one day with their financial planners that they lost all of their investments and insurances in which they paid dearly. The parents had agreed to make an investment so they and their children could have a secured future protection against market risks. Well, it became a reality for many Americans. This devastating loss left many taxpayers with misappropriated assets along with a burden to pay the “bill” for the bailout of AIG.
PART I: HOUSING MARKET SCANDAL: VIOLATIONS IN BUSINESS OPERATIONS
To understand the accounting scandal of AIG, one must first understand its business transactions and operations leading up to the SEC investigations. In 1993, President Bill Clinton signed into law the Omnibus Budget Reconciliation Act, commonly known as the OBRA-93 or the Deficit Reduction Act. Part XIII, is our primary focus, the Revenue Reconciliation Act which allows limitations on executive compensations by limiting