AIG Auditing Scam

By Venika Wadhwa (16059) Sanya Sharma (15053) Esha Rohila (16026) Hanspreet Singh (16066)

BFIA III

Shaheed Sukhdev College of Business Studies

Contents
INTRODUCTION.................................................................................................. 4 INITIAL WARNING SIGNS AT AIG ...................................................................... 4 AIGS PREVIOUS FRAUDULENT ENCOUNTERS .................................................... 5 BRIGHTPOINT ....................................................................................................... 5 PNC FINANCIAL SERVICES GROUP INC ......................................................................... 6 CONCLUSION...................................................................................................... 6 AIGS OWN ACCOUNTING GOES UNDER REVIEW ................................................ 6 AIG/GENERAL RE DEAL ...................................................................................... 7 OTHER PROBLEMS IDENTIFIED .......................................................................... 8 IMPROPER USE OF FINITE POLICIES.................................................................. 9 MORE CASES OF QUESTIONABLE ACCOUNTING ................................................ 10 SINCE MAY 2005 ................................................................................................ 11 AIGS SETTLEMENT .............................................................................................. 12 CRIMINAL CHARGES .............................................................................................. 12 OTHER RECENT UPDATES ....................................................................................... 13 AIG TIMELINE .................................................................................................. 13

|AIG Auditing Scams

ACKNOWLEDGEMENT

We would like to express our gratitude to all those who gave me the possibility to complete this project. We are deeply indebted to our supervisor Ms Sanjana Juneja, whose help, stimulating suggestions and encouragement helped us in all the time of research for writing of this project. Especially, we would like to give our special thanks to our parents whose patient support enabled us to complete this project.

|AIG Auditing Scams

Introduction
American International Group, Inc. (NYSE: AIG) or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in La Dfense, Paris, and its Asian headquarters office is in Hong Kong. According to the 2011 Forbes Global 2000 list, AIG was the 29th-largest public company in the world. It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008. Largest U.S. commercial insurer 93,000 employees Does work from insurance to asset management in 130 countries Main customers are businesses, but it also sells life and property insurance to individuals One of the largest, most profitable companies in the world Known for its steady earnings growth CEO: Maurice Hank Greenberg Worlds biggest reinsurance buyer Shareholders equity 2007: $95.80 billion Annual Net Income 2004: $9.84 billion 2005: $10.48 billion
2006: $14.05 billion 2007: $6.2 billion

Initial Warning Signs at AIG

A company founded in 1987 called Coral Reinsurance in Barbados only had one customer: AIG In 1991, Coral Re held more than $1 billion in estimated losses from AIG but only had $15 million in capital Regulators became convinced that Coral Re was under AIGs control and no real risk was being transferred AIG eventually agreed to stop its business with Coral

|AIG Auditing Scams

Re, but AIG never admitted Coral Re was an affiliate and never was fined The states simply made AIG promise to report any similar reinsurance transactions in the future. That appeared to be the end of AIG's problems with questionable links to offshore reinsurers. In truth, it was only the beginning. An AIG division reported that it had transferred large pieces of reinsurance from Coral Re to a Barbados company called Union Excess. Eliot Spitzer named AIG as a participant in a bid-rigging scheme with other major insurers and insurance broker Marsh & McLennan Cos. 2 former AIG employees pleaded guilty in the scheme Marsh & McLennans CEO at the time was AIG CEO Maurice R. Hank Greenbergs son (Jeffrey Greenberg) Eliot Spitzer cited Fortune Brands (sells home/office products, wine/spirits, etc.) as a victim of the bid-rigging. Marsh directed underwriters at ACE Ltd. (headed by Evan Greenberg, Maurice Greenbergs other son) to raise their quote on excess liability coverage for Fortune Brands to keep it from competing with a unit of American International Group Inc. In an internal email it was stated by ACE "We were more competitive than AIG in price and terms. (Marsh) requested we increase premium to $1.1 million to be less competitive, so AIG does not (lose) the business." Mr. Spitzer has charged that insurers intentionally produced inflated quotes and lost business in the alleged Marsh bid rigging, knowing that they would later win other accounts from the broker. New York Attorney General Eliot Spitzer sued MMC, charging the broker with steering clients to insurers paying Marsh the highest contingent commissions and rigging bids on client programs. Mr. Spitzers investigation has produced 9 guilty pleas in total so far. The younger Mr. Greenberg was forced from his post as the chief of Marsh & McLennan Cos. after Mr. Spitzer publicly said he wouldn't deal with the company during a bid- rigging probe of its insurance brokerage if Mr. Greenberg was in charge.

AIGs Previous Fraudulent Encounters

Brightpoint
AIG helped Brightpoint design a retroactive insurance policy to spread out losses that should have been recognized immediately SEC accused AIG of both fraud and helping Brightpoint falsify its earnings in 1998 Overstated earnings by 61% Hid some of Brightpoints $29 million in losses Fraud surfaced in 2003

AIG agreed to pay $10 million fine in a settlement of civil charges with the SEC. AIG worked hand-in-hand with Brightpoint personnel to custom design this insurance policy. Basically, money just transferred from Brightpoint to AIG back to Brightpoint, no risk was transferred). By disguising the money as insurance AIG enabled Brightpoint to spread a loss that should

|AIG Auditing Scams

have been recognized immediately out over several years (Brightpoint would pay monthly premiums to AIG for 3 years, but during the time AIG paid the money back in the form of insurance claims, Brightpoint recorded the payments as insurance receivables to offset its losses). AIG also withheld documents and committed other abuses which made its misconduct worse. AIGs profit from this policy was less than $100,000.

PNC Financial Services Group Inc

AIG helped PNC Financial Services create 3 special-purpose, off-balance-sheet investment vehicles in 2001 SEC charged that AIG acted as a counterparty to move $762 million of underperforming loans or volatile assets off PNCs balance sheet. AIG again helped clients deceive investors by selling insurance products or creating off-balance-sheet vehicles that have the effect of downplaying losses or overstating earnings. This let PNC show earnings that were 52% more than they would have been without these special purpose vehicles. These investment vehicles allowed PNC to dump assets into them that they expected to deteriorate. AIG also contributed funds to these vehicles. AIG resisted requests for documents, emails, and other information the SEC and Justice Dept. requested and downplayed the seriousness of investigations in public statements. AIG, from the firms management fees for the first year, made $8.1 million from the PNC transactions.

Conclusion
1. In both cases, AIG helped these companies hide adverse financial developments from their shareholders 2. 3. a. b. AIG never admitted or denied wrongdoing in either case Settlement- AIG pays: $80 million penalty to the Justice Department $46 million to a SEC restitution fund

AIGs Own Accounting Goes under Review

New York Attorney General Eliot Spitzer and the SEC had been focusing on the relationships between AIG and their clients Now focus is shifting to AIGs own financial statements

|AIG Auditing Scams

 Regulators are interested in whether AIG has aided their own results with the techniques they pioneered and marketed in years past AIG maintains its own accounting is not an issue

Starting to investigate nontraditional insurance products and certain assumed reinsurance transactions and AIG's accounting for such transactions. AIG in February 2005 had announced it was subpoenaed by the U.S. Securities and Exchange Commission and New York Attorney General Eliot Spitzer's Office in an investigation of non-traditional insurance products that investigators said might have been used to improperly improve the company's financial picture. Investigation is beginning to focus on AIGs own use of finite risk coverages. The SEC has also requested information on the use of finite risk products from other companies, including General Re Corp., Chubb Corp., ACE Ltd. and Swiss Reinsurance Co. This may be the first time regulators are investigating these products' impact on an insurer's own book, rather than on its clients'. Mr. Spitzer and the SEC subpoenaed Berkshire Hathaway Inc., the insurance-holding company run by billionaire investor Warren Buffett. The Omaha, Neb., company said the subpoenas sought documentation and information relating to nontraditional or lossmitigation insurance products from its General Re unit and the unit's affiliates. Some of the "alternative risk" transactions that regulators are looking into across the industry allow insurers to improve their balance sheets in the short run either by moving some of their claims reserves to another insurer, or taking on another company's reserves. Such arrangements can violate accounting rules if sufficient risk isn't transferred.

AIG/General Re Deal
Regulators focus on a deal AIG cut with General Re, a reinsurance company. Investigators say AIG bought insurance from General Re and accounted for it in a way that overstated revenue. In March 2005, AIG said for the first time that the 2000-01 transaction with General Re was improperly recorded as a reinsurance deal. At the time, some AIG shareholders were questioning whether the insurance company had enough money set aside to cover potential claims, known as reserves. Under the transaction, AIG shifted $500 million of expected claims to itself from General Re, along with $500 million of premiums. AIG booked the premiums as revenue, and then added $500 million to its reserves to reflect its obligation to pay the claims. If AIG was receiving the premiums to ensure that it didn't lose anything in the deal, then it faced no risk. In that case, it wasn't really insuring anything and the $500 million shouldn't have been treated as premium revenue. General Re received a $5 million commission for the deal. For its part, General Re did not treat the transaction as an insurance policy; instead, it booked it as a finance deal, people familiar with the matter have said. The more significant issue for General Re is whether it aided any improper accounting

|AIG Auditing Scams

at AIG. Authorities are scrutinizing General Re on that issue and may be spurred further by yesterday's AIG statement, although the statement didn't discuss whether General Re bore any responsibility for the transaction's problems. AIG admits to: using insurers in Bermuda and Barbados that were secretly controlled by AIG to bolster its financial results, including shifting some liabilities off its books a broad range of improper accounting that could slash its net worth by $1.77 billion, improperly accounting for a reinsurance transaction with Berkshire Hathaway Inc.s General Re in 2000-2001. After the admission, Investigators now are examining actions of top AIG officials. The SEC could bring civil fraud charges against the company or executives. AIGs shares fell 1.8% continuing to sliden Feb. 14, 2005 AIGs shares are down 22% since closing on Friday, Feb. 11. Standard & Poors and Moodys downgraded AIGs long-term bonds and certain other debt by a notch from its top AAA and Aa1 rating. A.M. Best put AIG under review with negative implications. Fitch Ratings put AIG under Rating Watch Negative. Company says accounting problems probably will not deplete its net worth (shareholders equity) by more than 2%. AIG CEO Hank Greenberg resigns in March 2005 and retired as AIGs chairman days later. Shareholders equity would still be above $80 billion. Mr. Greenberg had been running AIG for nearly four decades and was responsible for moving AIG into China which is now one of its most promising regions. Many say Mr. Greenberg was the most powerful executive in the history of insurance. Mr. Greenberg took AIG from $300 million market value to about $160 billion. However, Spitzer praises AIG for changing some top management. In late 2000 and 2001, Gen Re shifted $500 million of expected claims to AIG along with $500 million of premiums. Gen Re accounted for this transaction properly. AIG recorded the premiums as reveue and added $500 million to its reserves to show its obligation to pay claims

Other Problems Identified

AIG booked $300 million in gains on its bond portfolio from 2001-2003 without actually selling bonds. If it had waited to book the income until it sold the bonds, the income would have come later and been counted as "realized capital gains. Money owed to AIG by other companies for property-casualty insurance policies may not be collectible. The company said that could result in an after-tax charge of $300 million. Potential problems with AIG's accounting for the up-front commissions it pays to insurance agents and similar items might force it to take an after-tax charge of up to $370 million.

|AIG Auditing Scams

AIG also will begin recording an expense on its books for compensation paid to its employees by Starr International, the private company run by current and former executives. Starr has spent tens of millions of dollars on a deferred- compensation program for a hand-picked group of AIG employees in recent years. Underreporting its premium income from workers' compensation policies enabled AIG to under contribute to worker's compensation funds and underpay taxes on workers' comp premiums.

Improper Use of Finite Policies

But in practice, finite policies have sometimes been used improperly. In 2000 and 2001, AIG's Greenberg asked General Re to do an unusual deal involving a bundle of finite contracts General Re had written for clients. AIG took over the obligation to pay up to $500 million in claims on the contracts. At the same time, General Re passed to AIG $500 million in premiums the clients had paid. AIG paid General Re a $5 million fee for moving these contracts to AIG's books. Last year, General Re reported the deal to investigators who were questioning a number of reinsurers about finite policies. This deal carried a red flag because it was backwards: Typically, it would be AIG seeking a finite policy to shift risk to General Re. Because the $500 million in premiums had to be paid back to General Re, AIG seemed to be losing money on the deal, not making it. So why had Greenberg asked to take over those contracts? In accounting for the deal, AIG tallied the premiums as $500 million in revenue and applied that amount to its reserve funds used to pay potential claims. This helped satisfy shareholders who had been concerned AIG did not have enough in reserve. The issue in this deal, as in many finite insurance contracts, is whether AIG was providing insurance coverage or receiving a loan. To be insurance, AIG would have to assume a risk of loss. An industry rule of thumb known as "10/10" says the insurer should face, at a minimum, a 10% chance of losing 10% of the policy amount for the contract to be considered insurance. In the absence of that degree of risk, the premiums transferred from General Re to AIG, and repayable later, would be a loan. AIG would then not be able to count the $500 million in premiums as additional reserves, as it had. On March 30, AIG directors announced that: "Based on its review to date, AIG has concluded that the General Re transaction documentation was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance." As a result, the company said it would reduce its reserve figure by $250 million and show that liabilities had increased by $245 million. However, it added, these changes would

|AIG Auditing Scams

have "virtually no impact" on the company's financial condition. Bottom line: The AIGGeneral Re deal was an accounting gimmick to make AIG's reserves look healthier than they were -- an apparent effort to deceive regulators, analysts and shareholders.

More Cases of Questionable Accounting

The directors then surprised observers by announcing they had uncovered a number of additional cases of questionable accounting. The most serious involved reinsurance contracts AIG had taken with a Barbados reinsurer, Union Excess, allowing AIG's risk to pass to the other company and off AIG's books. AIG found that Union did business exclusively with AIG subsidiaries, and that Union was partially owned by Starr International Company Inc. (SICO), a large AIG shareholder controlled by a board made up of current and former AIG managers. Hence, the AIG statement said, SICO could be viewed as an AIG unit, or "consolidated entity," and SICO's risks were therefore actually AIG's. As a result, AIG had to reduce its shareholders' equity by $1.1 billion. Another case involved a Bermuda insurer, Richmond Insurance Company, that the directors found to be secretly controlled by AIG. A third concerned Capco Reinsurance Company, another Barbados insurer, and "involved an improper structure created to recharacterize underwriting losses as capital losses," the directors said. Fixing this meant listing Capco as a consolidated entity and converting $200 million in capital losses to underwriting losses. Yet another case involved $300 million in income AIG improperly claimed for selling outside investors covered calls on bonds in AIG's portfolio. Covered calls are supposed to give their owners the option to buy bonds at a set price for a given period, but AIG used other derivatives transactions to assure it could retain the bonds. The directors also stated that certain debts owed to AIG might be unrecoverable, resulting in after-tax charges of $300 million. And they noted that the company was revising accounting for deferred acquisition costs and other expenses involving some AIG subsidiaries, resulting in as much as $370 million in corrections. Some of the revelations seemed eerily similar to ones raised in the Enron case, which included use of little known offshore subsidiaries to hide liabilities, although the scale of the abuse so far appears to be far smaller at AIG. The scandal highlights one of the dilemmas of American accounting, says Catherine M. Schrand, professor of accounting at Wharton. "We have one-size-fits-all accounting for firms in this country. If the standard-setters try to make it too specific and take out all the gray areas, then they would have a problem creating financial statements that are relevant.

|AIG Auditing Scams

10

Since May 2005

The $1.2 trillion insurance industry is overseen by small state offices who are not equipped to detect multistate or international scams. State regulators defend the job they've done. The problem, they say, is that insurers lied to them. Outside auditors didn't penetrate AIG's structure to detect supposedly independent reinsurers that AIG now says it secretly controlled or hidden side agreements between insurers. Nor did the financial industry specialists who reviewed the insurers' filings at the SEC. After the Coral Re dispute, AIG pledged in writing to reveal any ties with its reinsurers -- and filed statements certifying the independence of specific companies that it now acknowledges controlling or backing. Still, critics contend that the fragmented system of state regulation lacks the checks that can expose frauds before they compound. To coordinate efforts, state regulators have banded together in the National Association of Insurance Commissioners. But the NAIC doesn't regulate or investigate. AIG would restate more than 4 years of financial statements which will reduce its net worth $2.7 billion. AIGs current management said there were issues with its internal controls. AIGs stock has fallen 30% . The company said it would restate financial statements for 2000, 2001, 2002 and 2003 and for 2004's first, second and third quarters. AIG's stock, long a Wall Street darling, has fallen 30% since its disclosure on Valentine's Day that it had received subpoenas from regulators. The company's internal investigation uncovered instances where AIG quickly shifted money in and out of hedge funds near the end of financial reporting periods. Regulators believe this strategy was designed to burnish AIG's results. There are instances in which so-called derivative trades, such as futures contracts that allow investors to bet on currencies, was "incorrect" under Financial Accounting Standards Board's rule 133. The rule governs how companies measure the value of and returns on derivatives. Regulators suspect the insurer may have used favorable "hedge" accounting for derivatives positions that weren't initially intended to hedge a specific risk. Elizabeth Monrad, John Houldsworth, and Rick Napier each received a Wells Notice from the SEC notifying them that they could face securities-fraud charges due to their work at General Re. At the end of May, AIG restated 5 years of financial results reducing its net income by 10%. Ms. Monrad was the chief financial officer at Gen Re, Mr. Houldsworth is chief underwriter for General Re's reinsurance unit in Dublin, and Rick Napier, a senior vice president at Gen Re. Regulators are focusing on a conference call that took place in November 2000 between Ms. Monrad, Mr. Napier and two AIG executives, as evidence of Ms. Monrad's knowledge of AIG's plans to commit the fraud. In addition, the SEC has zeroed in on steps both executives took to create a so-called paper trail of false documents justifying the transaction. At the end of May 2005, New York state authorities sued AIG, former CEO Maurice R. Hank Greenberg, and former CFO Howard I. Smith. These are civil charges and not criminal charges, but criminal investigation of individuals still continues. The goal, the suit contends, was to exaggerate the strength of the company's core underwriting business, propping up the price of one of the nation's most widely held stocks. The lawsuit, filed in the state court in Manhattan and seeking damages and disgorgement of any illegal profits,

|AIG Auditing Scams

11

alleges a range of improper accounting and activities. This civil lawsuit was filed by New York Attorney General Eliot Spitzer and New York State Insurance Superintendent Howard Mills. The lawsuit revealed little new material information against AIG that hadn't already been made public, and its primary focus was Greenberg and Smith, rather than the company itself or current management. Mr. Spitzer backed off seeking possible criminal charges against Mr. Greenberg in June.

AIGs Settlement
AIG resolves allegations by reaching a $1.64 billion settlement. AIG will also have to submit to additional reinsurance reporting and financial reporting. The settlement does not resolve the cases against Greenberg or Smith. AIG has not admitted or denied allegations. AIG also faces a $1.1 billion after-tax negative reserve development. The $1.64 billion is to settle state and federal charges of securities fraud, bid-rigging and failure to pay proper contributions to various state workers' compensation funds. Under the terms of the settlement, AIG will pay $800m to a fund for investors deceived by its false financial statements and a fine of $100m. Policyholders affected by AIG's bid rigging will receive $375m, and a further $344m will go to states harmed by AIG's understatement of workers' compensation premiums. The company will also pay a fine of $100m and a $25m penalty to the Justice Department. Industry observers concurred the $1.64 billion settlement, which is one of the largest-ever regulatory fines assessed on a single corporation--shouldn't hinder the company. In an amendment filed Sept. 2006 in New York State Supreme Court, the authorities removed AIG as a defendant. Additionally, they dropped an allegation relating to underpayment of contributions to state workers' compensation plans -- for which AIG had already pledged restitution. Authorities continue to charge that Mr. Greenberg and Howard I. Smith misled investors with sham transactions that artificially boosted AIG's reserves and disguised underwriting losses. But the suit eliminates previous allegations that the two executives guided AIG schemes to avoid state workers compensation premium taxes and to conceal AIG's control of several offshore entities.

Criminal Charges
3 Gen Re executives and 1 AIG executive plead innocent to 16 counts including conspiracy, securities fraud, false statements to the SEC, and mail fraud Ronald Ferguson: former CEO at Gen Re Betsy Monrad: Gen Re's former chief financial officer Robert Graham: former Gen Re assistant general counsel Christian Milton: AIG's former vice president of reinsurance 1 Gen Re executive is charged on 10 counts Christopher P. Garand: Gen Res senior vp and chief underwriter for finite reinsurance operations from 1994 to 2005

|AIG Auditing Scams

12

Other Recent Updates

Fred Hafetz, a lawyer for Mr. Milton, the only defendant who worked for AIG, said he believes his client was denied a fair trial when he was prosecuted with the four former General Re executives. None of the defendants testified. The case hinged largely on emails and taped phone conversations in which the defendants could be heard clearly discussing details of the deals, laughing about financial-reporting rules and even poking fun at AIG's accounting practices. Several observers expressed surprise that the jury found all five defendants guilty on all counts despite their varying degrees of involvement in the reinsurance deal, saying they had expected a split verdict, a hung jury or acquittals on some counts. Ferguson, Graham, Milton, and Monrad are all convicted on the 16 counts. Garand is convicted on 10 counts. The most compelling evidence in the trial was taped phone conversations and emails. Lawyers for the five defendants convicted said they intend to appeal. Following the verdicts, the judge set May 15, 2008 for sentencing and released each of them on a $1 million bond. The investigation is still continuing and more indictments may come. Mr. Greenberg and Mr. Brandon (current CEO of Gen Re) still face no criminal charges. Warren Buffett is not charged with anything and is no longer being investigated

AIG Timeline
Date 1987 1998 Event AIG Financial Products Corp. is created. AIG Financial Products begins to sell highly rated credit default swaps to other financial institutions. AIG restates its prior accounting for many transactions. Maurice R. "Hank" Greenberg steps down as AIG's long-time chief executive officer amid several widening investigations into the company's business practices. He is succeeded by Martin J. Sullivan, who had been vice chairman and co-chief operating officer. Sullivan also is elected president. 2006 AIG consents to a final judgment on SEC accounting fraud charges, accused of falsifying its financial statements from at least 2000 until 2005. AIG pays a total of $800 million, including $100 million in penalties. The valuation of the securities that the credit default swaps were designed to protect drop as the U.S. mortgage market begins to deteriorate. AIG records significant unrealized

2005

2007

|AIG Auditing Scams

13

market valuation losses, especially on AIGFP's credit default swap portfolio, which leads to certain cash requirements. AIG reports large unrealized losses in its securities lending program, in which AIG made short-term loans of certain securities it owned to generate revenues by investing in highgrade residential mortgage-backed securities. These and other AIG real estate-related investments suffer sharp declines in fair value as well. 2008 The collapse of Bear Stearns and Lehman Bros., as well as crises at mortgage companies Fannie Mae and Freddie Mac contribute to the collapse of credit markets, making it virtually impossible to access capital. AIG's credit ratings are downgraded, and these trigger collateral calls and cash requirements in excess of $20 billion. Sept. 15 AIG receives $20 billion from the state of New York.

A.M. Best downgrades the financial strength rating to A from A+ and issuer credit ratings to A from AA of the domestic life and retirement services subsidiaries of AIG. U.S. Treasury Secretary Henry A. Paulson announces the government will not offer a federal loan to AIG. Sept. 17 The Federal Reserve Bank of New York provides $85 billion loan to AIG, giving the government control of 79.9% of AIG. Federal officials replace AIG CEO Robert Willumstad with Edward Liddy, retired CEO of Allstate. Sept. 24 Sept. 26 AIG finalizes its agreement with the Federal Reserve Bank of New York on $85 billion bailout. Maurice "Hank" Greenberg, AIG's former chairman, and Starr International Co., a firm controlled by Greenberg, sell 40 million shares of AIG stock.

Oct. 3 AIG announces it will focus on core property/casualty insurance businesses, and sell other assets. Oct. 8 A $37.8 billion liquidity facility is announced, in which AIG loans the Federal Reserve Bank of New York investmentgrade, fixed-income securities in exchange for cash. Oct. AIG agrees to freeze $600 million in payouts to former

|AIG Auditing Scams

14

22 Oct. 31 Nov. 13 Nov. 25 Nov. 25

executives. AIG is given access to nearly $21 billion through the Federal Reserve's new commercial paper program. AIG closes 178 branches and cuts approximately 380 jobs at American General Finance Inc. AIG cuts jobs and takes its name off an auto insurance unit, AIG Direct, which is rebranded as 21st Century Insurance. AIG announces salaries to be frozen and bonuses cancelled for its top executives and Chairman Liddy's salary will be $1 a year until 2010. Federal Reserve Bank of New York created Maiden Lane LLC to purchase $53.5 billion of collateralized debt obligations. AIG cancels $93.3 million in bonuses to former employees and top executives.

Dec.

2009 Jan. 8

Mar. 2 AIG receives $30 billion in a second revised rescue plan. AIG's fourth quarter 2008 record loss of $61 billion was the largest corporate loss in U.S. history. Mar. 16 President Barack Obama instructs Treasury Secretary Tim Geithner to block the payment of $165 million in bonuses to AIG executives in the Financial Products division. AIG employees of the Financial Products unit agree to return $50 million from bonuses paid out on March 15.

Mar. 24

April 3 21st Century Insurance, a subsidiary of AIG, closes four offices and lays off 7% of its work force. April 7 AIG receives loan $800 million loan from American General Finance Corp. May 4 Maurice R. "Hank" Greenberg sells AIG shares to Starr International Co. May 19 AIG names six new independent director nominees who will stand for election at the company's annual shareholders meet June 30.

|AIG Auditing Scams

15

May 21 May 22

AIG's Chairman and Chief Executive Officer Edward M. Liddy say he will resign. Three members of AIG's board of directors will not seek reelection at the annual shareholders meeting, including Stephen F. Bollenbach, Martin S. Feldstein and James F. Orr III.

June 5 A federal judge grants a request by AIG for a jury trial in a lawsuit with Starr International Co., run by Greenberg, over control of a large block of AIG stock. June 30 July 7 AIG announces a two-for-one stock split, giving investors one new share for every 20 they owned. Federal jury rules that Greenberg's company did not loot a trust fund that AIG claimed was established to provide compensation for senior AIG execs.

July 20 AIG files shelf registration statement with SEC, enabling it to issue stock in the future. July 20 The Federal Reserve Bank of New York enters into an agreement making Morgan Stanley its financial adviser for selling assets or stock offerings from AIG. July 27 AIG creates a third special purpose vehicle containing the equity of Chartis, its new property/casualty entity. SPVs for the equity of AIA and American Life Insurance Co. were created July 25. Aug. 10 Aug. 19 Former MetLife CEO Robert H. Benmosche starts in his role as president and chief executive of AIG. Benmosche decides the company should keep the independent broker/dealer business that was formerly known as AIG Financial Advisors and has been renamed Sagepoint Financial Inc. AIG, Maurice Greenberg and Howard Smith agree to arbitrate their disputes.

Aug. 31

|AIG Auditing Scams

16