Tuesday, September 16, 2008

TIME MACHINE - Political Roots of the AIG Implosion: Exactly How "Adversarial" were AIG and Eliot Spitzer?/AIG - A High Risk Insurance Carrier

Compiled by Alex Constantine

AIG Political Contributions by Subsidiaries Questioned in N.Y.

September 21, 2006

Major corporations based in New York such as American International Group Inc. have legally contributed many times more than the corporate limit to political candidates who regulate their businesses, state and good-government officials said.

In the case of AIG, the insurance giant is limited to giving $5,000 (euro3,951) to a candidate. But the parent company used 33 subsidiaries in recent years to give $335,000 (euro264,738) to three-term Republican Gov. George Pataki; $50,000 (euro39,513) to Attorney General ELIOT SPITZER, the Democratic front-runner for governor; and $25,000 (euro19,757) to Democratic Comptroller Alan Hevesi, according to The New York Times.

"That happens all the time,'' said Rachel Leon of New York-Common Cause, which for years has lobbied to reform this and other campaign finance practices.

"It's just one of the many loopholes that make our campaign finance laws meaningless,'' she said. "We might as well not have any limits because in the real world, they don't apply.''

"As far as I can see, it's within the parameters of our law,'' said Lee Daghlian, a spokesman for the state Board of Elections, of the AIG contributions. "We are not looking at anything.''

The corporate limits were created in the mid-1970s and set at $5,000 (euro3,951) to restrict the influence of companies on candidates, he said.

AIG spokesman Joe Norton told the Times that the donations by subsidiaries, many of them in sequentially ordered checks drawn from a common account, are charged back to the subsidiaries. He said AIG usually recommends the candidates to receive donations.

The contributions in 2003 to Spitzer, the two-term attorney general, were made before Spitzer investigated AIG and its then CEO, Maurice "Hank'' Greenberg. AIG, one of the world's largest insurance companies, announced in February that it would pay $1.64 billion (euro1.3 billion) to resolve allegations that it used deceptive accounting practices to mislead investors and regulatory agencies.

The settlement did not cover Greenberg, who resigned in March 2005 and is fighting Spitzer in court.

Another major concern of Common Cause is companies that are organized as limited liability corporations. The LLCs aren't subject to the $5,000 (euro3,951) corporate limit, but instead are treated as individuals and may contribute as much as $50,100 (euro39,592) to a candidate.

"Both loopholes are just another example of how New York campaign finance law is almost completely useless,'' said Common Cause's Liam Arbetman.

Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AIG (American International Group of Companies) boasts assets of over $800 billion and they do have a history of fraudulent acts at the higher levels of the company. They are ranked by the FBIC website in the top 10 hall of shame for payment of claims. ...

Gas and Oil
volume 10, issue #20
October 26, 2005

Three men charged for bribing officials in former Soviet Republic

Three men including an executive with American International Group were charged with offering hundreds of millions of dollars -- as well as shopping sprees, jewellery and medical treatment -- to top officials in the former Soviet republic of Azerbaijan to get favourable treatment in oil deals.

Investment promoter Viktor Kozeny, Frederic Bourke Jr. and AIG executive David Pinkerton, were charged in a 27-count indictment in US District Court in Manhattan. The defendants each were charged with violations of the Foreign Corrupt Practices Act, which makes it a crime to offer payment to foreign government officials to obtain or retain business.

The indictment said Kozeny, 42, an Irish citizen of Czech background, was president and chairman of Oily Rock Group and Minaret Group when he and the two other men -- both American citizens -- tried to buy off senior Azerbaijan officials.

Bourke, 59, of Greenwich, Connecticut, was an investor with Kozeny. Pinkerton, 44, of Bernardsville, New Jersey, wasan executive at American International Group, a US-based insurance company. He, too, was part of Kozeny's investment group, authorities said.

Pinkerton was put on administrative leave at AIG until the charges are resolved, the company said. He was managing director of AIG Global Investment and was in charge of AIG's private equity group, the indictment said.

AIG said the investment in question was brought to AIG Global Investment Group by a New York investment fund which put together a group investing $ 180 mm. That group, AIG said, included an AIG subsidiary which invested approximately $ 15 mm in 1998.

AIG said no assets of AIG clients were invested in the transaction and that AIG, realizing it had been defrauded by Kozeny, joined other investors in bringing lawsuits against him in the United States, the United Kingdom and the Bahamas. It said it was cooperating with the probe by federal prosecutors and noted that no charges were brought against AIG.

US Attorney Michael J. Garcia said hundreds of millions of dollars in bribes were promised and tens of millions of dollars were actually paid in the scheme that ran from August 1997 until about 1999.

"The case that we bring today involves nothing less than the brazen attempt to steal the wealth of a sovereign nation," he told.

Azerbaijan, rich in oil resources, began privatising some of its state-owned enterprises in the 1990s, Garcia said. Garcia said the defendants tried to bribe key decision makers and corrupt the privatisation process.

Kozeny sent planeloads of cash from Switzerland to Azerbaijan to buy vouchers to purchase shares in the State Oil Co., which held the country's oil and gas reserves and its oil and gas exploration, production and refining facilities, Garcia said. Garcia said Bourke and Pinkerton knowingly participated in the scheme, bribing top Azerbaijan officials with jewellery, shopping sprees and medical treatment to ensure the national oil company would be sold "and that they would get their unfair share."

Mark J. Mershon, assistant director in charge of the FBI's New York office, said Kozeny's plan was to acquire millions of dollars worth of options to buy stock in the oil company to gain a controlling interest so the options could be resold for 10 times their value.

"Kozeny foresaw such a windfall that he could promise corrupt Azerbaijan officials two thirds of his profits and still make a killing," Mershon said.

Kozeny never gained control of the oil company, he added.

Bourke and Pinkerton surrendered to the FBI in Manhattan while Kozeny was arrested in the Bahamas, where he was awaiting a court appearance. If convicted, the men face up to five years on each count of violating the Foreign Corrupt Practices Act. Bourke and Pinkerton each pleaded not guilty before Judge Richard Casey.

Barry H. Berke, Pinkerton's lawyer, said: "David Pinkerton has been wrongfully accused of being a criminal based on a passive investment that represents less than 1 % of the investment portfolio he managed."

Stanley A. Twardy Jr., a lawyer for Bourke, said: "We're looking forward to proving his case in court."

Benjamin Brafman, a lawyer for Kozeny, said the Foreign Corrupt Practices Act does not apply to him and he cannot be prosecuted for charges related to payments he allegedly made to foreign officials.

He said Kozeny has not decided whether to fight extradition.

Source: Associated Press

Financial Cryptography

Where the crypto rubber meets the Road of Finance...

April 01, 2005

AIG scandal - when it's ok for a company to commit a crime

An article "A top insurance company as the new Enron?" describes the post-Enron thinking in the world of biggest scandals. As the AIG scandal develops, the shift is away from the company and towards the individuals.

Considered alongside Sarbanes-Oxley, this signals more emasculation of the shareholder rights and responsibilities - now it's ok for a company to commit crimes as long as a) it is to big to fail and b) the fall guys are easy to identify.

2005 ...

A top insurance company as the new Enron?

An accounting probe at AIG worries Wall Street, and involves some of America's richest men.

By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK – American business is facing yet another major scandal involving more accounting shenanigans.

But, this scandal has the potential to cause tsunami-sized damage: It involves a highly respected insurance company, American International Group (AIG) - which is part of the Dow Jones Industrial Average - which has now admitted to $1.7 billion in improper accounting. And, it has enveloped some legends in the financial arena: Maurice "Hank" Greenberg, forced out as chairman of AIG, and Warren Buffet, the Omaha stock market guru, who will be questioned about his possible involvement.

Because AIG is so massive and important to the financial world, regulators will have to tread carefully. The company's main business is providing reinsurance, that is, it insures insurance companies. This helps the industry to spread its risk among many large and financially sound companies so a single event does not become a financial disaster for one company.

Also, because of AIG's huge size, lawyers don't think the government will bring a criminal charge against the company as it did for Arthur Andersen, Enron's accountant. The criminal charge was a death sentence for the accountant.

"There is an increased reluctance to bring criminal charges that ultimately have the effect of killing a company that otherwise employs a lot of innocent people and has lots of value to it," says Michael Gass, an expert on SEC enforcement at Palmer & Dodge, a Boston law firm. "Instead, there is an increased focus on the individuals responsible."

Past lessons

If the past is any indication of the future, the government will work its way up the food chain at the company. A host of executives, including the chief financial officer, have already resigned or been forced out. The government will try to pressure them to provide evidence against higher officials, particularly Mr. Greenberg.

"I would be shocked if nothing criminal comes out of this," says Mr. Gass. "The concept that there is a $1.7 billion fraud on the stock holders and not a criminal action is ridiculous."

Global investigation

The investigation is likely to also expand overseas. AIG has operations offshore, particularly in Bermuda where it has used a company to provide financial rewards for its executives. "It's common for insurance companies to use offshore companies and not be public about it," says Gass. "There is nothing illegal about it unless there is misuse."

So far, it's expected Mr. Buffet will be questioned as a possible witness, not necessarily a target. Buffet is chairman of a company called Berkshire Hathaway, which owns a company called General Re, which provides reinsurance. It agreed to a $500 million AIG deal that is now under scrutiny. Investigators are now trying to determine what Buffet knew and when he knew it.

"With the icon of integrity and master of morality even mentioned with AIG causes some people to ask, 'Is everyone now suspect?'" asks Sam Stovall, chief investment strategist at Standard & Poor's in New York.

The scandal links two of the world's richest men. According to Forbes Magazine, Buffet is the world's second-richest person with assets of $41 billion. Greenberg is ranked 132 in the world and 59th in the US with assets of $3.1 billion. Recently, two of Greenberg's sons, both executives in the insurance business, have also been tarnished by scandal.

Washington connections

Greenberg is well-known in Washington where he known for raising large amounts of money. Greenberg was one of the President Bush's "Rangers" which means he personally raked in more than $200,000 for the reelection campaign. At the same time, he is also known for his access to members of the cabinet and Congress. This access has paid-off as the administration has often supported Greenberg on a number of issues ranging from access to China to terrorism insurance.

However, Gass says the company's influence is not likely to extend to the investigation. "No one would take the political risk of terminating a criminal investigation assuming they have the power," he says.

Greenberg and AIG have further expanded their reach through the use of the $5 billion Starr Foundation, named after the founder of the company Cornelius Vander Starr. It supports influential groups such as the Council on Foreign Relations and the National Chamber Foundation, associated with the US Chamber of Commerce.

Before its legal troubles, AIG had begun an advertising campaign to become more well-known to Americans. Its most recent logo is "We know money." And, it brags it is the financial organization to choose for your "great-great-great-great-great grandchild." Now, lawyers expect it is likely to be fighting class-action lawsuits and irate regulators as it battles to survive.

Posted by iang at April 1, 2005 09:36 AM


Dear Sirs: My total retirement savings was invested in an AIG variable annuity. Three years ago (after earning 15%+ for ten years) I lost 40%. In the past three years I've earned almost nothing -- it's just sitting there -- I am retiring this summer and I'm so damaged I'm afraid to do anything.

The annuity was attractive because it was said to be profitable and would not require me to follow it closely. I actually believed that!

AIG Scandal Could Hurt Official's Chance To Lead Fed
By Nell Henderson
Washington Post Staff Writer
Tuesday, April 12, 2005; E01

The scandal roiling insurance giant American International Group Inc. could weaken the chances of one of the company's prominent directors to succeed Alan Greenspan as Federal Reserve chairman, several economists and political observers have said in recent days.

AIG director Martin S. Feldstein, 65, president of the National Bureau of Economic Research and once the chief economic adviser to President Ronald Reagan, has been considered among the top three candidates for the Fed job, according to economists and political operatives on Wall Street and in Washington.

But AIG recently reported that it may have overstated its net worth by about $1.7 billion through a variety of questionable transactions. Its longtime chairman and chief executive, Maurice R. "Hank" Greenberg, was forced to give up those titles and is scheduled to give a deposition to investigators today.

Feldstein, an AIG director since 1988, serves on the board's finance committee but is not a member of the audit or compensation committees. He was among several of the company's outside directors whose institutions received donations from the Starr Foundation, a nonprofit organization controlled by Greenberg, The New York Times reported Sunday.

The NBER, which publishes working papers on economic topics, received more than $2.6 million during 2001 and 2002, according to AIG's latest proxy statement, filed nearly a year ago. The document said NBER did not intend to seek more money from the Starr Foundation.

Feldstein has not been implicated in the accounting problems, but his association with the company "could have some resonance" as President Bush and top White House officials evaluate the candidates for Fed chief, said Thomas Schlesinger, executive director of the Financial Markets Center, a nonprofit research institute that follows the Fed.

Feldstein's connection to AIG may be "relatively innocuous" by itself, Schlesinger said. But, he said, "the Bush administration has been very sensitive to corporate scandal and has put distance between itself and any whiff of corporate scandal."

Former FBI director William H. Webster, for example, had been chosen in 2002 to head the federal accounting oversight board created in the wake of the scandals at Enron Corp. and WorldCom Inc. But he withdrew his name from consideration after it became public that he had served as a director and head of the audit committee of U.S. Technologies Inc., a Washington manufacturer whose chief executive, C. Gregory Earls, was later convicted of defrauding investors.

U.S. Technologies ceased to exist as a publicly traded company as part of a settlement with the Securities and Exchange Commission. The controversy also contributed to the resignation of Webster's sponsor for the accounting board job, Harvey L. Pitt, as chairman of the SEC.

Bush administration officials declined yesterday to comment on Feldstein's chances for Fed chief. "We don't comment or speculate on personnel matters," said Assistant Treasury Secretary Robert S. Nichols, adding that Treasury Secretary John W. Snow "holds Marty Feldstein in high regard."

Feldstein, through his NBER office, declined to comment on the AIG matter.

Greenspan, 79, has indicated that he plans to step down next January from the job he has held since 1987.

White House officials have indicated that they are in no hurry to name Greenspan's successor, both to avoid undermining his effectiveness and because they have many other economic positions to fill within the administration.

Karl Rove, Bush's deputy chief of staff, told Bloomberg News last week that it would be "a little premature" to announce Greenspan's replacement before the end of this year. But that hasn't stopped traders, analysts, investors and political observers from speculating about the choice. The administration started compiling names of possible candidates three years ago.

The list includes Feldstein, Columbia Business School Dean R. Glenn Hubbard, 46, and Fed board member Ben S. Bernanke, 51. All have stellar academic credentials and experience in national economic policymaking.

Hubbard served as chairman of Bush's Council of Economic Advisers from 2001 until February 2003, helped craft the administration's 2003 tax cut and has remained an administration adviser. Bernanke, former chairman of Princeton University's economics department, was appointed to the Fed by Bush in 2002, and has been chosen by Bush to become the next CEA chairman later this year.

The race is "hard to handicap," said William C. Dudley, chief economist at Goldman Sachs U.S. Economic Research Group.

Hubbard is closer to White House officials than the other two. Bernanke has more expertise on Fed policy. But Feldstein has greater seniority and stature in the economics profession.

Feldstein, who has taught at Harvard University for decades, served as Reagan's CEA chairman and is renowned for his pioneering research on how taxes affect business and consumer behavior. Because of that work, he is considered the father of "supply side" economics -- the idea that cutting taxes stimulates economic growth.

"Marty Feldstein is one of the giants of the economics business," Dudley said.

But Feldstein also has detractors among some White House allies who haven't forgiven him for criticizing the federal budget deficits that resulted in part from tax cuts during the Reagan administration.

"I just don't trust Marty Feldstein, and I think that's the view of most supply-siders like myself," said Steve Moore, president of the Free Enterprise Fund, a group that is lobbying for private Social Security accounts, Bush's top political priority this year.

Technically, the Fed is responsible primarily for setting interest rate policy and regulating banks. But Greenspan turned the job into that of national "economist-in-chief," influencing policy on taxes, deficits, entitlement programs, trade and other issues, Moore said. Therefore, he said, economic conservatives will expect any potential successor to share their positions on those issues.

When you add Feldstein's AIG connection to such political "considerations," Schlesinger said, "the folks making the decision might push a little farther down the list."

Staff researcher Richard Drezen contributed to this report.

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