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Greenberg turns on AIG directors

In a letter sent on his 80th birthday last week, former AIG CEO Maurice "Hank" Greenberg has hit out at the directors of the company he built, lambasting them for“vile accusations” and a “one-sided review” of accounting issues.

He was responding to AIG’s 8 May admission that it would have to restate its finances because of accounting irregularities since 2000, leading to a 3.3 percent or $2.7bn drop in its value.

In its statement, the company launch a thinly veiled attack on “certain former members of senior management” who, it said, were able “to circumvent internal controls over financial reporting”.

But in his six-paragraph letter to the 17 AIG directors, a copy of which was obtained by the Wall Street Journal, Greenberg countered: “I have known many of you for a long time and am puzzled by your refusal to share sufficient information with me to permit me to respond to the vile accusations being made against me… The board's release [is] based upon a one-sided review.”

In the same vein, he said AIG's statement lacked critical perspective, adding that it was “beyond… comprehension” that the board members could have come to any conclusions without the input of Greenberg and former chief financial officer Howard Smith.

Both Greenberg and Smith were forced to resign in the wake of New York attorney general Eliot Spitzer’s investigation into allegations of bid rigging in the insurance industry. Greenberg, however, will retain his seat on the board until a successor is named at the company’s next annual meeting.

Both men have invoked the Fifth Amendment to avoid answering regulators’ questions.

A second angle of attack in Greenberg’s letter was that AIG’s claims of improper accounting during the CEO’s tenure were unsupported. His legal team made the point that PricewaterhouseCoopers LLP, AIG's accountants, had made positive comments about the company's internal controls in early March.

Stated Greenberg: “Given the innuendo contained in AIG's release of 1 May which can be interpreted as impugning the integrity of prior and present AIG management, I was surprised that this press release provided no factual basis to explain why AIG or PricewaterhouseCoopers changed its position.”

The list of AIG’s boardroom members reads like a roll-call of the great and the good of the US political and business world. It includes William S Cohen, the former defense secretary and US senator; former US trade representative Carla A Hills; the former UN ambassador Richard C Holbrooke as well as top AIG executives.

Meanwhile, as also reported in the Wall Street Journal last week, it appears that investigations into business conduct within the insurance industry could be increasing both in scale and seriousness.

The news follows an admission by the Federal Bureau of Investigation (FBI) that it is probing allegations of impropriety in the industry and that it could extend the investigation to banking and other financial sectors.

Accordingly, FBI agents and personnel from other regulatory bodies met in New York on 5 May.

The bureau is understood to have assigned between 50 and 75 investigators from its Financial Crimes section to the probe.

It is not the first time that the FBI has become involved in high profile cases of financial irregularity: it also played an important role in the inquiry into the collapse of Enron and Worldcom.

Chris Swecker, assistant director of the FBI's criminal investigative division, was quoted as saying: “We have a very wary eye on the insurance industry because of AIG.”

And he added that the FBI could be looking at other parties for evidence of fraud. “If one was doing it, others had to stay competitive,” he said.

No pronouncements from the FBI are expected “for at least a few months”.

Separately, it emerged today that Lloyd’s is among the organisations to receive a subpoena from the Georgia Insurance Department asking for information regarding finite reinsurance transactions.

In a statement the corporation commented: “Lloyd's is one of a large number of US and overseas insurers which have received information requests from the Georgia Insurance Department. They are asking Lloyd's syndicates to provide information about reinsurance contracts in force in 2004. We are very happy to assist the Georgia Department with this information gathering exercise. There is no suggestion that Lloyd's syndicates have acted improperly.”

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