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AIG: The Problem of Disclosures



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Code : GOV0027C

Year :
2005

Industry :Banking, Insurance and Financial Services

Region : US

Teaching Note: Available

Structured Assignment : Available

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Introduction: On February 9th, 2005, Maurice Greenberg, chief executive of AIG (American International Group), was exuberant. AIG was going to announce its results- gross revenue of $100 billion. Greenberg looked back at his achievement with a sense of pride. Starting with a modest profit of just under $14 million in 1967, the company was to announce a profit of more than $11 billion2. However, this mood of celebration was soon shattered. Federal regulators had called their general counsel, Ernest Patrikis, with word that a new investigation was under way as to whether AIG had manipulated its accounts. Within 24 hours of announcing the results, the SEC (Securities and Exchange Commission) and the New York Attorney General, Eliot L. Spitzer's office issued subpoenas3 to AIG seeking information about some of its transactions. The charge was that AIG had indulged in creative accounting for quite a few years which had gone unnoticed by regulatory authorities. Following this, Greenberg resigned his position and Martin Sullivan replaced him. Investors wondered why the stringent regulatory measures had failed to stop companies from indulging in accounting manipulation and whether financial penalties alone were sufficient.

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