When American International Group Inc. was bailed out by the federal government last month most Americans were shocked beyond belief. It’s hard to believe that this huge and powerful company had to be saved by a massive federal government bailout. In any event, at that time, U.S. prosecutors had been looking into a scheme to manipulate the financial statements of the world’s largest insurance company which resulted in a loss of more than $1 billion to investors. As reported previously, four former executives of General Re Corp. and a former executive of American International Group were convicted in February of conspiracy, securities fraud, mail fraud and making false statements to the Securities and Exchange Commission. Those persons are waiting to be sentenced. The prosecution filed papers in court, citing a study by its expert, concluding that the fraud-related losses to AIG shareholders totaled $1.2 billion to $1.4 billion. Another methodology from the same expert, however, put the losses at around $543 million to $598 million, still a big number.
Prior to the bailout, federal prosecutors said the Defendants participated in a scheme in which AIG paid Gen Re as part of a secret side agreement to take out reinsurance policies with AIG in 2000 and 2001, propping up its stock price and inflating reserves by $500 million. Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers. We are heavily involved in civil litigation arising out of wrongdoing by AIG, General Re, and other related companies and several individuals. I predict we haven’t heard the last of AIG’s problems.
Source: Insurance Journal
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