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AIG in Damage Control

Cooperation Counts in Investigations

By Carrie Johnson and Ben White
Washington Post Staff Writers
Friday, April 1, 2005; Page E01

American International Group Inc. has warned investors about a $1.7 billion reduction in capital, pushed out its chairman of the past four decades and disclosed that deals under federal investigation were "improper."

And that's only the past four days.

Maurice R. "Hank" Greenberg was an early casualty of AIG's accounting problems. He was forced out as chairman and chief executive. (Michael Probst -- AP)

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AIG, one of the world's largest insurance companies, is struggling to respond to inquiries from New York's attorney general, the Securities and Exchange Commission and the Justice Department. The investigations span the world and involve some of Wall Street's most prominent figures, including former AIG chairman Maurice R. "Hank" Greenberg and Berkshire Hathaway Inc. leader Warren E. Buffett. Both men will sit down for interviews with investigators this month to talk about a Berkshire Hathaway subsidiary's dealings with AIG.

The investigations also raise questions that have become familiar in the fallout from corporate scandals at Enron Corp., WorldCom Inc. and other companies: Did the company use accounting tricks to hit the numbers investors were looking for? What did top management know?

Investigators are examining Greenberg's involvement in several insurance deals that may have been used to make the company's earnings look better or boost its reserve accounts. AIG said Wednesday that it continues to review transactions that could reduce its net worth by $1.7 billion. Regulators are scrutinizing those and other deals between AIG and several U.S. and offshore insurance companies. An attorney for Greenberg, who is scheduled to be interviewed by regulators April 12, did not return calls.

One transaction under scrutiny is a deal between AIG and General Re Corp., a reinsurance company that is part of Berkshire Hathaway. Regulators have said Buffett is cooperating and is not a subject or target of the investigation.

AIG's managers and board are pursuing a strategy that emphasizes cooperation with government investigators, even at the expense of such figures as Greenberg, who stepped down under pressure from the board Monday after nearly 40 years in charge. Convincing regulators that AIG is a changed company could help reduce any penalties the company is forced to pay.

AIG has fired three employees in the past month, including chief financial officer Howard I. Smith, for refusing to cooperate with investigators and invoking their right against self-incrimination. AIG's board also has hired two law firms to investigate the company's accounting and to represent outside board members. One of the firms, Paul Weiss Rifkind Wharton and Garrison LLP, employed New York Attorney General Eliot L. Spitzer when he was in private practice.

Christopher D. Winans, an AIG spokesman, said: "We require that employees cooperate with authorities with regard to matters involving the company. If somebody's going to refuse to cooperate, then they're not on the team anymore."

Greenberg was replaced as chairman by former securities industry regulator Frank G. Zarb, an independent director. Of the board's 16 members, 10 are independent. Among them are former defense secretary William S. Cohen, a director since February of last year, and former U.S. ambassador to the United Nations Richard C. Holbrooke, who joined the board in 2001.

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