AIG 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 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 together and it is one of the biggest reinsurance companies in the World. Reinsurance companies are entities that insure the insurance companies. They help insurance companies share risk by selling reinsurance plans that would help pay off a share of a claim from the insurance companies. The CEO of General Re was Ron Ferguson when the fraud was committed. General’s RE subsidiary in Dublin, Ireland, known as Cologne Re Dublin (CRD) was also heavily involved in the fraud.
The Deal
On October,
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 together and it is one of the biggest reinsurance companies in the World. Reinsurance companies are entities that insure the insurance companies. They help insurance companies share risk by selling reinsurance plans that would help pay off a share of a claim from the insurance companies. The CEO of General Re was Ron Ferguson when the fraud was committed. General’s RE subsidiary in Dublin, Ireland, known as Cologne Re Dublin (CRD) was also heavily involved in the fraud.
The Deal
On October,
References: AGREED STATEMENT OF FACTS. (n.d.). Retrieved from justice.gov: http://www.justice.gov/criminal/pr/documents/01-20-1%20gen-re-agreedstatement.pdf AIG SECURITIES LITIGATION-PwC SETTLEMENT. ( 2010, December 2). Retrieved from AIG SECURITIES LITIGATION-PwC SETTLEMENT: http://www.aigsecuritieslitigationpwcsettlement.com/ AIG: What Went Wrong. (2005, 4 10). Retrieved from businessweek.com: http://www.businessweek.com/stories/2005-04-10/aig-what-went-wrong American International Group. (20, September 2013). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/American_International_Group CALLAHAN, D. (2010, November 8). AIG: Before the Crash, There Was the Fraud. Retrieved from cheatingculture.com: http://www.cheatingculture.com/accounting-fraud/2010/11/8/aig-before-the-crash-there-was-the-fraud.html Kay, J. (2005, March 24). Top insurance company mired in allegations of accounting fraud. Retrieved from International Committee of the Fourth International (ICFI): http://www.wsws.org/en/articles/2005/03/aig-m24.html Schonfeld, M. (2005 ). John Houldsworth: Securities and Exchange Commission Litigation Complaint. New York. Starkman, D. (2005, June 1). AIG Comes Clean on Accounting. Retrieved from The Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2005/05/31/AR2005053101589.html Wilkinson, P. (2009, February 11). PwC Off Hook In AIG Shareholder Fraud Suit. Retrieved from law360.com: http://www.law360.com/articles/87034/pwc-off-hook-in-aig-shareholder-fraud-suit Young, D. R. (2009, May 6). Actuarial Accounting:A Cautionary Report. Retrieved from casact.org: http://www.casact.org/education/spring/2009/handouts/young.pdf