AIG files annual report, acknowledges accounting improprieties

Thursday, May 26th 2005, 1:24 pm

By: News On 6

NEW YORK (AP) _ American International Group Inc., which is being investigated over accounting issues, filed its long-awaited 2004 annual report with the Securities and Exchange Commission on Tuesday, restating financial results for 2000 through 2003 and adjusting the firm's 2004 results.

As part of the restatement, AIG cut shareholders' equity at Dec. 31, 2004, by $2.26 billion, or 2.7 percent, to $80.61 billion, in line with an earlier estimate. This included an after-tax reduction of $1.19 billion for changes in estimates for the fourth quarter of 2004.

Revised calculations by the New York-based company lowered AIG's profits by nearly $4 billion for the five years starting in 2000. The biggest of those changes came in 2004, with net income cut by $1.32 billion, or nearly 12 percent, to $9.73 billion from the $11.05 billion that had been reported on Feb. 9.

In its new filing with the SEC, AIG acknowledged accounting improprieties, including ``improper or inappropriate transactions.''

AIG acknowledged that two of the transactions at the center of the investigation were with General Reinsurance Corp., a unit of billionaire Omaha investor Warren Buffett's holding company Berkshire Hathaway Inc.

The transactions, AIG said, were improper, ``done to accomplish a desired accounting result and did not entail sufficient qualifying risk transfer'' to allow them to be booked as insurance. The transactions were recharacterized as deposits, AIG said in its filing.

Buffett has said he was not directly involved in the transaction, and a New York lawsuit against AIG said the deal was worked out between Greenberg and Gen Re's former chief executive.

AIG also said: ``In many cases, these transactions or entries appear to have had the purpose of achieving an accounting result that would enhance measures believed to be important to the financial community and may have involved documentation that did not accurately reflect the true nature of the arrangements.''

In some instances, the filing said, the transactions ``may also have involved misrepresentations to members of management, regulators and AIG's independent auditors.''

AIG shares fell 45 cents, or 0.8 percent, to $55.95 in midmorning trading on the New York Stock Exchange. Its shares have traded in a 52-week range of $49.91 to $74.98.

Last week, New York regulators filed a civil lawsuit against AIG and the company's former chief executive officer, Maurice ``Hank'' Greenberg, and former Chief Financial Officer Howard I. Smith, saying they orchestrated an accounting scheme that made AIG's financial picture appear brighter than it was, misleading both investors and regulators.

The suit, filed Thursday in state Supreme Court in Manhattan by New York Attorney General Eliot Spitzer, accused the company and the former executives of using ``deception and fraud'' to boost the company's stock price.

Spitzer launched his investigation of AIG in February. In March, Greenberg, 80, resigned as chief executive officer and chairman of AIG, ending nearly 40 years at the helm of the insurance company. Smith was fired about a week later for failing to cooperate with investigators.

A state grand jury is meeting to decide whether to bring criminal charges, according to reports in The Wall Street Journal and The New York Times. State officials have declined to comment on the issue.

In a statement announcing the filing of the Form 10-K, Martin J. Sullivan, who replaced Greenberg as president and chief executive officer, said the company ``continues to cooperate to the fullest possible extent with all ongoing government and regulatory investigations.''

Sullivan said the company, with 92,000 workers worldwide, had embarked on ``a new era'' that would improve the way the company operates and contribute to future growth.

AIG said it expects to file its financial report for the first quarter of 2005 by the end of June. In addition, the company said it will commission an independent review of the loss reserves of its principal property-casualty insurance operations. The review is expected to be completed before AIG reports fiscal 2005 financial results.