Companies that abuse the public trust

BusinessWeek carries an article on American International Group (AIG), and the predicament it is now finding itself in as US regulators close in. The international empire spans 130 countries, selling just about financially related, including insurance. Last year, they brought in $9.3 billion on $81.3 billion of revenues. They're being questioned specifically on a retroactive insurance policy they've been selling, that has helped companies hide millions of dollars of losses. How does it work? AIG would sell the retroactive insurance policy to companies, for which they would have to pay monthly premiums -- but, when those companies were expecting a loss a fiscal period, AIG would issue payments on insurance claims to offset the loss. The companies would record the payments as insurance receivables. In effect, the insurance policies allowed the companies to hide their losses from shareholders and investors. When the SEC came calling, AIG at first lied. They blamed the whole thing on a low ranking individual within the company with improper training. When the SEC got evidence, AIG then produced relevant documents and gave a sworn certification that they had handed over all documentation. When the SEC issued another subpoena, more documents showed up however. The SEC has gotten more aggressive in the post-Enron world. They're taking this new approach with AIG.