With the alleged fraud at giant insurer American International
Group (AIG) resulting in losses to the State’s pension funds of more than $400 million since Feb. 14 when it was announced that AIG had received subpoenas from the U.S. Securities and Exchange Commission (SEC) and the New York State Attorney General’s office, California Treasurer Phil Angelides has called on the California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) to take all possible actions to recover losses to the funds and taxpayers, push for reforms at AIG to protect shareholders from further harm, and enlist other institutional investors in those reform efforts.
In letters to CalPERS and CalSTRS, Angelides urged the two funds to aggressively pursue all avenues – including legal actions against the company, responsible executives and the company’s auditor – to recoup stock losses due to alleged fraud, and to use their considerable market clout to seek improvements in the company’s governance to protect shareholders from further damage.
Angelides also encouraged the funds to enlist other large institutional investors in their efforts to reform AIG. Angelides’ letter to CalPERS
was co-signed by the fund’s Board President, Rob Feckner.
In addition, Angelides urged the funds to examine the role auditor
PricewaterhouseCoopers may have had in alleged wrongdoing at AIG.
Last year, CalPERS and CalSTRS voted against the election of the audit committee members and ratification of PricewaterhouseCoopers as AIG’s independent auditor, because the auditors were authorized by the company to perform lucrative non-audit consulting work – a practice that the pension funds had sought to curb since the scandals of Enron and WorldCom.
According to Angelides, while it appears clear now that AIG’s auditing process was flawed, at the time of the votes against AIG’s independent auditor, anti-corporate reform forces such as the Chamber of Commerce and the Business Roundtable roundly criticized the funds’ actions.
“AIG is a poster child of the corporate corruption that has brought the fairness and integrity of our nation’s financial markets into question and cost investors trillions in recent years, if these allegations prove to be true,” Angelides said. “It is unconscionable that these alleged corporate misdeeds have already cost California’s pension funds and
taxpayers $400 million. We must hold the company and responsible executives accountable for their actions, and we must protect shareholders and taxpayers against further harm.”
Angelides urged the funds to pursue the following actions, at a minimum:
1. The funds should take all possible steps, including legal action, to recover any losses suffered by the pension systems and California taxpayers as a result of improper corporate behavior at AIG or the company’s auditor, PricewaterhouseCoopers.
2. The funds should demand that company elections allow for shareholder nominations to the board of directors and for the selection of independent board members that look out for the interests of shareholders, not corporate insiders.
3. In light of allegations about widespread accounting fraud at the company, the funds should take steps to ensure that AIG’s outside auditor is truly independent.
In recent months, a number of serious allegations have come to light regarding AIG, including the resignation of AIG Chairman and CEO Maurice “Hank” Greenberg on March 14. The company is currently under investigation by the U.S. Department of Justice, the U.S. Securities and Exchange Commission, and the New York State Attorney General’s office as a result of these revelations.
Allegations made public include bid-rigging, and a host of questionable accounting moves possibly intended to deceive investors and artificially prop up the company’s stock price.
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