Today, the SEC announced that it had filed charges in the U.S. District Court for the Southern District of New York against former AIG Chairman and Chief Executive Officer Maurice “Hank” Greenberg and former Vice Chairman and Chief Financial Officer Howard Smith for their alleged involvement in “numerous improper accounting transactions that inflated AIG's reported financial results between 2000 and 2005.”

The complaint alleges that Greenberg and Smith were responsible for “material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets” and disguised AIG’s numerous financial challenges through improper accounting. According to the complaint, the SEC specifically alleges that Greenberg and Smith were responsible for: (1) sham reinsurance transactions designed to give the appearance of an increase to AIG’s general loss reserves; (2) a deal with an offshore shell entity designed to conceal AIG’s auto-warranty insurance business’ multi-million underwriting losses; (3) transactions designed to report improper gains in investment income and (4) the sale of tax-exempt municipal bonds to improperly recognize realized capital gains.

Both Greenberg and Smith settled the charges against them and agreed to pay disgorgement and penalties totaling $15 million and $1.5 million, respectively. In 2006, AIG settled charges of securities fraud and improper accounting by disgorging $700 million, paying a penalty of $100 million and other remedies.