AD Quality Auto 360p 720p 1080p Top articles1/5READ MORESanta Anita opens winter meet Saturday with loaded card The settlement does not cover Maurice “Hank” Greenberg, the company’s former chairman and chief executive who was named in the suit but who has pledged to fight it in court. While acknowledging the civil misconduct and facing a huge fine, AIG at the same time escapes the threat that a criminal case could have been brought. The Justice Department said AIG’s agreement spares the company criminal prosecution in exchange for its cooperation with the ongoing federal criminal investigation. Shareholders welcomed the announcement, sending AIG shares up 74 cents, or 1.1 percent, to close at $67.12 Thursday on the New York Stock Exchange. AIG said that under the settlement it will pay $800 million for investors who were deceived by AIG’s accounting tactics, including a $100 million penalty to the SEC. In addition, it will pay $375 million to AIG policyholders, $344 million to states harmed by AIG’s practices from 1986 to 1995 involving state workers’ compensation funds, and fines of $100 million to the state of New York and $25 million to the U.S. Justice Department. NEW YORK – American International Group Inc., one of the world’s largest insurance companies, has agreed to pay $1.64 billion to resolve allegations that it used deceptive accounting practices to mislead investors and regulatory agencies. The deal – believed to be the biggest concluded by regulators with a single company – also requires the New York-based firm to adopt changes in its business practices that will ensure proper accounting procedures in the future. AIG said in a statement that the settlement was approved by its board “in the best interest of the company.” The pact announced Thursday settles a civil lawsuit filed last May by New York Attorney General Eliot Spitzer with backing from the New York State Insurance Department and the U.S. Justice Department. The Securities and Exchange Commission, which also worked with Spitzer on the investigation, filed and settled allegations of accounting fraud with the company simultaneously. AIG said it would take a $1.15 billion after-tax charge in its upcoming fourth-quarter earnings report to cover the settlement. It also announced that it would take a $1.1 billion after-tax charge to increase its reserves to reflect the completion of a recently concluded internal risk study. AIG said that as part of the deal, it also has agreed “to retain for a period of three years an independent consultant who will conduct a review” of the company’s accounting and internal controls. Donald Light, senior insurance analyst with Celent, a Boston-based research and consulting company, said the settlement “means AIG’s board and management is off the hook for anything worse … such as a criminal case.” He added: “They’re paying a lot of money for that, but AIG is huge and this amounts to less than 2 percent of shareholders’ equity.” Spitzer told The Associated Press in an interview, “This is a company that didn’t have to cheat. But once they began, they found it hard to stop. And like an addict, they grew dependent on financial gamesmanship that could ultimately destroy the company.” He said that the new business practices AIG was adopting would improve the market for property and casualty insurance in the United States by creating “a new level of transparency in the market that all consumers will benefit from. The SEC’s enforcement director, Linda Thomsen, noted that the investigation looked at the entire industry and centered on misuse of specialized insurance vehicles, such as reinsurance. “While this settlement concludes our investigation of AIG, our investigation continues with respect to others who may have participated in AIG’s securities-laws violations,” she said. The settlement with AIG exceeds many of the fines the SEC imposed following a wave of corporate scandals in 2002, including civil fines and restitution of $750 million for WorldCom Inc., $715 million for Adelphia Communications Corp. and $300 million for Time Warner Inc. It also surpasses the $850 million settlement Spitzer reached last year with New York-based Marsh & McLennan Companies Inc., the nation’s largest property and casualty brokerage, over allegations of bid rigging and price fixing as well as hidden commissions. AIG was among the companies that allegedly participated in the bid-rigging scheme, and four former AIG executives were among 20 insurance executives and officers who have pleaded guilty to charges, Spitzer’s office said. Besides naming AIG, Spitzer’s suit alleged that Greenberg and former chief financial officer, Howard I. Smith, orchestrated the scheme. Greenberg, who resigned from AIG in March, has repeatedly insisted that he followed proper accounting procedures during his 38 years at the helm of AIG. Smith, too, has denied wrongdoing, and neither of the men was involved in the negotiations with the SEC and Spitzer. In a statement issued late Thursday, Greenberg’s spokesman Howard Opinsky said a “white paper” issued by Greenberg’s legal team last summer “debunked many of the allegations” of the regulators. He added: “The suggestion in the attorney general’s public comments that Mr. Greenberg may have been involved in any wrongdoing is false. We are confident that when the debate moves from the newspaper to the courts, Mr. Greenberg will be vindicated.” The accounting scandal centered on transactions that AIG under Greenberg concluded with Berkshire Hathaway’s General Re. insurance group. In its filing, the SEC said the $500 million transactions in 2000 and 2001 “were designed to inflate falsely AIG’s loss reserves … in order to quell analyst criticism that AIG’s reserves had been declining.” Three former Gen Re executives and one former AIG executive were indicted last week in connection with the deceptive accounting scheme. Greenberg was replaced as chief executive by Martin Sullivan, who oversaw the restatement of AIG’s earnings back to 2000. The revisions knocked some $2 billion off shareholders’ equity and nearly $4 billion off its profits. Sullivan said in a statement Thursday that the settlement marked “a major step forward in resolving the legal and regulatory issues facing AIG.” He said the company was “committed to business practices that provide transparency and fairness in the insurance market.” 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!