FOR IMMEDIATE RELEASE|
TUESDAY, NOVEMBER 30, 2004
TDD (202) 514-1888
AMERICAN INTERNATIONAL GROUP, INC. ENTERS
INTO AGREEMENTS WITH THE UNITED STATES
WASHINGTON, D.C. - Deputy Attorney General James B. Comey, Assistant Attorney General Christopher A. Wray of the Criminal Division and FBI Director Robert Mueller - all members of the President’s Corporate Fraud Task Force - announced today that American International Group, Inc. (“AIG”) - the world’s largest insurer by market value - and two of its subsidiaries have agreed to resolve the criminal liability associated with certain financial transactions by paying $80 million in penalties to the United States and cooperating fully in the government’s continuing criminal investigation of those transactions.
In a related enforcement proceeding filed earlier today by the U.S. Securities and Exchange Commission, AIG consented to the entry of a judgment requiring AIG to disgorge $39.8 million in fees received from the PAGIC transactions and $6.5 million in prejudgment interest. With today’s joint agreements totaling $126,366,000, coupled with an agreement reached last year between the Department and The PNC Financial Services Group, Inc. (“PNC”), in which PNC agreed to pay $115 million in penalties and restitution, the Department of Justice and the SEC have obtained $241,366,000 in restitution, disgorgement, penalties and prejudgment interest in connection with off-balance sheet transactions commonly known as the PAGIC transactions.
A criminal complaint filed today at U.S. District Court for the Western District of Pennsylvania charges AIG-FP PAGIC Equity Holding Corp., a subsidiary of AIG, with violating the federal securities laws, including 15 U.S.C. Sections 78j(b) and 78ff(a), 17 C.F.R. Section 240.10b-5, and 18 U.S.C. Section 2, by aiding and abetting PNC in connection with a fraudulent transaction involving a special purpose entity (“SPE”), known as a PAGIC entity. As part of an agreement, the Department of Justice will defer prosecution on the criminal complaint for 13 months, and eventually dismiss the complaint, if AIG and its subsidiaries fully comply with the obligations set forth in the deferred prosecution agreement.
The three-part agreement requires AIG to implement a series of reforms addressing the integrity of client and third-party transactions, including a retrospective review of certain transactions effected by a third party with AIG. The retrospective review will be conducted by an independent consultant, chosen by the Justice Department, the SEC and AIG. The consultant will report to DOJ, the SEC and AIG. The agreements also require AIG to establish a transaction review committee. The independent consultant will review the policies and procedures of the transaction review committee.
As part of the agreement between AIG, the Department of Justice and the U.S. Attorney’s Office for the Southern District of Indiana, AIG pledged its complete cooperation with a continuing
investigation into the PAGIC transactions and certain other transactions, including the marketing and sale of a non-traditional insurance product by a subsidiary of AIG to Brightpoint Inc.
In addition, the agreement requires an AIG subsidiary, AIG Financial Products Corp. (“AIG-FP”) to pay the $80 million in penalties to the United States for AIG-FP’s involvement in the PAGIC transactions.
“Today’s actions show that the Department of Justice and our partners on the President’s Corporate Fraud Task Force will use the full range of the government’s criminal and civil enforcement powers against corporations that promote and facilitate fraudulent financial transactions,” said Deputy Attorney General Comey. “These agreements, including significant penalties and corporate reforms, will ensure AIG’s compliance with the law while minimizing the collateral consequences to its employees and shareholders.”
“We are pleased that AIG has accepted responsibility, committed to cooperating fully and agreed to enact these important reforms,” said Assistant Attorney General Wray. “There is no place in our markets for financial transactions that lack economic substance and violate the law.”
The agreements reached today with regard to the PAGIC transactions arose from the development, marketing and sale of certain structured financial transactions by AIG-FP. AIG-FP, in conjunction with a national accounting firm, developed the structured financial products used by PNC to transfer $750 million in mostly troubled loans and venture capital investments from subsidiaries of PNC to the PAGIC entities. AIG placed the PAGIC entities on its balance sheet. The ability of PNC to account for the PAGIC entities as off-balance sheet SPEs - as if PNC no longer owned the assets transferred to those entities - depended upon whether or not the transactions complied with the requirements for nonconsolidation under generally accepted accounting principles (“GAAP”). The PAGIC transactions violated the GAAP requirements for non-consolidation because AIG-FP did not make or maintain a substantive capital investment of at least three percent in the PAGIC entities. Certain fees paid to AIG-FP in the transactions compensated AIG-FP for structuring the transaction and for taking the assets and liabilities of the PAGIC entities onto AIG’s balance sheet, thereby reducing AIG-FP’s investment in the PAGIC entities below three percent.
PNC’s restatement on Jan. 29, 2002, following its decision to consolidate the PAGIC entities back onto PNC’s balance sheet, resulted in a drop in PNC’s net income for 2001 of approximately $155 million and a drop in PNC’s share price by over nine percent.
The PAGIC transactions were previously the subject of a deferred criminal disposition in United States v. PNC ICLC Corp., filed on June 2, 2003 in federal court in Pittsburgh, Pennsylvania. The Department of Justice earlier this year dismissed the criminal complaint against PNC ICLC Corp., a subsidiary of PNC, after the company fulfilled its obligations under the Deferred Prosecution Agreement. PNC has also entered into a separate agreement with the Department of Justice pledging its complete cooperation in the continued investigation of the PAGIC transactions.
The case was prosecuted by Deputy Chief Paul E. Pelletier and Trial Attorney Michael K. Atkinson of the Fraud Section. The Brightpoint investigation is being handled by Assistant United States Attorney Winfield Ong.