Legal News

SEC Week Continues: Regs Squeeze $15M Out of AIG?s Greenberg

By Ashby Jones

When the history of the Securities & Exchange Commission is written (or rewritten), we wonder just what kind of treatment the week of August 3 - August 7, 2009 will receive.

For the nation’s top securities cops, it’s been a headline-filled week. Earlier in the week came word of a $33 million settlement with Merrill Lynch (which was later put on hold by a New York federal judge). Then came word of a $50 million deal with General Electric. The latest news involved former AIG head Hank Greenberg, who, it was announced on Thursday, agreed to pay $15 million to settle allegations of a handful of accounting flaws. The company’s former chief financial officer, Howard Smith, agreed to settle allegations for $1.5 million.

In the complaint, the SEC contended that AIG under Greenberg’s leadership “faced a number of financial challenges that, had they been properly reported or accounted for, would have exposed significant missteps in AIG’s operations and caused the company to miss certain key earnings and growth targets.”

The agency added that Greenberg and Smith “were aware of transactions that enabled AIG to create the false impression that it consistently met or exceeded expectations for these key financial measures,” and Smith, as chief financial officer, “knew or recklessly disregarded that AIG’s accounting” didn’t conform to accepted accounting rules.

A statement on behalf of Greenberg stated that he was pleased that “after a four-and-a-half-year investigation involving the review of millions of pages of documents and numerous depositions, the SEC has now concluded not to charge Greenberg with any fraud.” (Funny thing going on here, it seems, with the use of the word “charge.” Greenberg claims to have not been charged with fraud. The SEC did, however, “charge” Greenberg, alleging that Greenberg was “liable” as a “control person” for “AIG’s violations of the antifraud and other provisions of the securities fraud.”)

Andrew Lawler, an attorney for Smith, said Thursday in a statement although “Mr. Smith was originally inclined to litigate this matter, resolving the SEC matter allows him to move forward with his life without the added legal costs and distraction of this lawsuit.”

Need more evidence that the SEC is feeling the mojo? Robert Khuzami, the commission’s director of enforcement, in a speech given on Wednesday, said the commission was overhauling itself. The commission, according to Khuzami, was taking steps to speed subpoenas and encourage more cooperation from people. Central to the restructuring: groups devoted to investigating cases in five specific areas: asset management, structured products, municipal securities and public pensions, foreign corrupt practices and market abuse. Click here for the Bloomberg story.

Full post as published by Law Blog - WSJ.com on August 06, 2009 (boomark / email).