New York-based commercial insurer American International Group Inc. announced that it has agreed to pay an $80 million penalty and appoint an independent monitor in a settlement with the Securities and Exchange Commission related to an investigation into structured financial transactions made with Pittsburgh-based PNC Financial Services Group in 2001.
The largest U.S.-based insurer said it would pay $46 million into an SEC disgorgement fund related to the mattt
AIG also said it has reached an agreement in principle with the U.S. Department of Justice, “with respect to issues arising from certain structured transactions with the PNC Financial Services Group, Brightpoint Inc., and related matters.”
The settlements would close the books on an ongoing investigation of AIGFP’s structuring of three special purpose financial vehicles for the Pittsburgh-based company, PNC Financial Services Group, Inc. in 2001 (see this Oct. 5 IJ story). The PNC transactions were the subject of a SEC action against AIG in 2002. They were terminated early the next year. Through the use of the derivative vehicles PNC was reportedly able to transfer some $762 million worth of doubtful loans and investments off its books, and on to AIG’s. The SEC has charged that the transactions violated accepted accounting principles and enabled PNC to overstate its 2001 earnings.
The SEC had also warned AIG that it was considering recommending that a civil action be brought against it, alleging violations of the federal securities laws, stemming from statements the company made in three separate press releases dated Jan. 30, 2002, Sept. 21, 2004 and Sept. 29, 2004.
The Brighpoint contract is the subject of a court case against AIG in the Southern District of Indiana, where a grand jury investigation of ‘non-traditional insurance’ or ‘income smoothing’ products marketed by AIG alleged that some of them were directed at creating agreements with businesses that would appear to be insurance and accounted for as insurance, but did not involve any actual risk transfer (See IJ Web site Oct. 21). The SEC had also investigated the case.
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