Wednesday, January 28, 2009

AIG VP Sentenced to Four Years While AIG FP's Get Bonuses

The former vice president of reinsurance of American International Group was sentenced to four years in prison for his role in a fraudulent scheme to manipulate AIG's financial statements.  The evidence showed that two sham transactions increased AIG's loss reserves by a total of $500 million in 2000-2001.  The VP and his four co-defendants were all convicted on all counts presented against them in the 16-count indictment.  The Judge found that AIG's shareholders lost between $544 million and $597 million as a consequence of the defendants' fraudulent scheme.  Can you believe it?  $500 million in losses to AIG's shareholders?  And these guys only got four years?  They should go to prison for life!  For life!

The timing on this news story could not have been better.  For it happened to hit the tape yesterday, the same day that Bloomberg reported that employees in AIG's financial products division were awarded $450 million in retention bonuses, post government bailout.  The financial products group was responsible for $34 billion in losses, as well as bringing one of the world's largest financial institutions to its knees, begging for a government bailout.  Since the aforementioned defendants were initially charged with their hideous crime in 2005, that cost AIG's investors a pittance of $500 million, AIG's market capitalization has declined by around $150 - $200 billion.  Meanwhile, Hank Greenberg, former AIG CEO who was in charge when the accounting fraud was perpetrated, is jetting around with Snowball, his trusty dog, writing pleading letters to the Wall Street Journal, interviewing with Maria Bartiromo, and desperately trying to wrest control of his failed insurance conglomerate from the government.  

While I certainly believe that perpetrating accounting fraud should always lead to prison, I have to admit that I'm slightly sympathetic to these particular defendants.  For their accounting shenanigans pale in comparison to the damage wrought by reckless stupidity and greed.  Hopefully, for their sakes, they stopped reading the Wall Street Journal in 2005.  

1 comment:

life insurance Canada said...

It seems like the connections between shareholders and management vanished completely. AIG lost 95% of its value within few months. I have been life insurance broker for 16 years and always considered AIG as a very reliable and respectable partner. But after 2008 only ashes are left. Fortunately, AIG Life of Canada was sold to Bank of Montreal, so at least we can expect some fresh start here. But old AIG I remember is lost forever...
Lorne