AIG, among the largest corporations in the United States, is the world's leading international insurance and financial services organization, with operations in more than 130 countries and jurisdictions. One investment firm wrote in 2000, "We have come to view AIG as almost the equivalent of a sovereign corporate nation, with its own diplomatic ties, economy, and head of state."

Unfortunately, charges of price fixing involving AIG have recently made headlines. Furthermore, there is evidence that AIG arranged deals to manipulate its own financial data and that of other companies. It is a troublesome indication of fraud perpetrated at the highest levels of some of our most respected corporate and financial institutions.

PRICE FIXING

Eliot Spitzer has accused several insurance companies -- including AIG, ACE, The Hartford, Munich American Risk Partners and others -- of steering contracts and bid rigging in a scheme that raises victims' insurance premiums.

Spitzer outlined one scheme involving AIG: When an AIG policy was up for renewal, Marsh & McLennan took the following steps to assure that AIG would win back the business. Marsh provided AIG with a "target premium and the policy terms" for the quote. By agreeing to the quote, AIG kept the business, even in cases where it could have quoted lower premiums. Marsh then let other carriers know what the winning quote was and had them submit an inflated, more expensive backup quote, or "B Quote," which made AIG's quote more attractive. Spitzer said such cooperation was in effect an "entrance fee" to gain future business. Former AIG executive Marc Vivori claims, "They were not acting in the best interests of their clients. At a minimum, they had an obligation to disclose any contingent commission arrangement with their clients."

AIG FINANCIAL FRAUD

Investigators are looking into the possibility that AIG attempted to overstate its financial well being. The Wall Street Journal recently commented on AIG's relationship with Excess Reinsurance and Richmond Insurance. "There are signs that AIG controlled the companies, but it accounted for its business with the pair as if each was unaffiliated with it...If they were affiliated, then AIG in effect was buying reinsurance from itself. That would mean that the nearly $1.2 billion in reinsurance 'recoverables' that its 2003 financial statements list...are actually AIG's own obligation."

Also under scrutiny is a transaction involving General Re,a reinsurance company. In 2000, General Re agreed to pay AIG a $500 million premium, and in return AIG assumed the risk from a number of policies General Re had sold to other companies. However, investigators claim that there was essentially minimal risk associated with these policies. Therefore, these transactions should have been classified as loans that would have decreased AIG's stated income.

On the reverse side of the coin, AIG was busy marketing policies whose main purpose was to help companies manipulate earnings. A 1997 internal document outlined a new form of "nontraditional insurance" whose main benefit would be "income statement smoothing."

One type of nontraditional insurance, "finite risk insurance," is a policy that regulators claim can be manipulated to help companies overstate their financial positions. As such, Fitch Ratings analyst Michael Barry noted, "The primary purpose is not true risk transfer in the traditional sense, but financial statement enhancement."

Recently, the Securities and Exchange Commission announced that American International Group Inc. agreed to pay $10 million to settle fraud charges related to its role in an accounting fraud at Brightpoint, a cell phone distributor.

"This case shows that the Commission will pursue insurance companies and other financial institutions that market or sell so-called financial products that are, in reality, just vehicles to commit financial fraud," said Stephen M. Cutler, director of the SEC's Division of Enforcement, in a statement.

"AIG worked hand in hand with Brightpoint personnel," said Wayne M. Carlin, regional director of the commission's Northeast Regional Office, "to custom-design a purported insurance policy that allowed Brightpoint to overstate its earnings by a staggering 61 percent." Added Carlin: "This transaction was simply a 'round-trip' of cash from Brightpoint to AIG and back to Brightpoint. By disguising the money as 'insurance,' AIG enabled Brightpoint to spread over several years a loss that should have been recognized immediately."

AIG agreed to make it appear that Brightpoint was paying premiums in return for an assumption of risk by AIG, the SEC elaborated in its complaint. "In fact, Brightpoint was merely depositing cash with AIG that AIG refunded to Brightpoint," it added.

"That company was a black box run with an iron fist by a CEO who did not tell the public the truth," said Spitzer, according to Reuters. "That is the problem."

Spitzer accuses AIG of deliberately creating false transactions in order to deceive investors.

"The evidence is overwhelming that these were transactions created for the purpose of deceiving the market. We call that fraud," Spitzer reportedly asserted. "It is deceptive. It is wrong. It is illegal."

Unfortunately, many investors and others have suffered because of these practices.

Improper practices of the insurance giant may cost California taxpayers $400 million in investment losses, according to California Treasurer Phil Angelides and the leader of the state's major pension fund, CalPERS. There is also potential liability of AIG auditor PricewaterhouseCoopers for losses incurred as a result of the scandal. It was claimed that opposition by state pension funds to Pricewaterhouse serving as the firm's auditor last year was due to the fact that the accounting company also provided consulting services to AIG.

If you or your company have suffered because of these fraudulent practices, involving insurance policy overpayment or investment losses, contact us immediately so that we may help you recover your losses.

Wall Street Fraud is dedicated to aggressively recovering annuities losses and stock market losses caused by brokerage firms and investment counselors.