Aig - Internal Control

ACTY 6010

Discussion Question – Internal Control

American International Group, Inc. (AIG) is an American multinational insurance company with corporate headquarters in New York City, New York. According to the 2011 Forbes Global 2000 list, AIG was the 29th-largest public company in the world [1].

On October 14, 2004 the New York State Office of Attorney General announced that it had commenced a civil action against Marsh & McLennan Companies for steering clients to preferred insurers with whom the company maintained lucrative payoff agreements, and for soliciting rigged bids for insurance contracts from the insurers [1]. AIG was the main beneficiary of these illegal activities. According to the Attorney General, AIG was involved in three types of fraudulent activities:

* AIG engaged in accounting fraud, culminating in a $3.9 billion restatement in May 2005 that included numerous different types of transactions, including allegations relating to a $500 million no-risk fraudulent reinsurance transaction that AIG entered into with General Reinsurance Corp. (GRC) in order to artificially boost AIG's reported claims reserves. One AIG executive and four GRC executives were found guilty of securities fraud in relation to that transaction [2].

* AIG paid tens of millions of dollars in undisclosed contingent commissions to insurance brokers and participated in a bid-rigging scheme with insurance brokers and certain insurance companies in order to divide the market for certain types of insurance [2].

* AIG engaged in straightforward stock price manipulation, in which company executives ordered company traders to inflate AIG stock price [2].

The Attorney General announced in a release that two AIG executives pleaded guilty to criminal charges in connection with this illegal course of conduct. In early May 2005, AIG restated its financial position and issued a reduction in book value of USD $2.7 billion, a 3.3 percent reduction in net worth...