Some shareholder advocates and pension fund officials described AIG's recent actions as too little too late from a board that has long been rated one of the least effective in corporate America. The moves have been largely intended to limit board members' personal liability, according to critics of the board, who noted that AIG's accounting revelations came after former directors at Enron and WorldCom agreed to pay millions of dollars of their own money to settle shareholder lawsuits.
"AIG's board has been consistently worst in class," said Nell Minow, a co-founder of the Corporate Library, a research group that rates companies on governance. Minow and others have consistently described AIG's board as dominated by Greenberg and loaded with less-than-vigilant outside directors.
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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The company's board, advised by the law firm Simpson Thacher & Bartlett LLP, is straining to avoid criminal and civil charges against the company.
In the past few years, after an indictment that essentially put accounting firm Arthur Andersen LLP out of business in 2002, the Justice Department frequently has employed deferred prosecution agreements with companies implicated in wrongdoing. Under the terms of those deals, firms must agree to stay clean for a specified period and hire outside monitors or accounting experts to review their books.
Cooperation generally consists of "doing an internal investigation, getting rid of bad apples and, if appropriate, waiving privilege," said former SEC enforcement official Thomas C. Newkirk. "Most defense counsel believe the wise course is to provide meaningful cooperation and convince regulators you're doing that."
Securities regulators cite the case of Royal Ahold NV, the Dutch company that owns Giant Food LLC, as perhaps the best recent example of cooperation by a company under siege. Ahold fired several top officials, investigated 17 operating units around the globe for accounting problems and made international witnesses available to U.S. prosecutors and investigators. Ahold paid no civil fines in a settlement with the SEC last year, despite maneuvers that led to $830 million in inflated profit.
The investigation is also looking into whether companies that entered into transactions with AIG knew that it was using them to make its earnings look better. Several companies have been penalized for helping others manipulate their books. For example, Time Warner Inc. and its America Online Inc. subsidiary paid $300 million last week to settle SEC charges, including allegations that the company helped Homestore Inc. and PurchasePro.com Inc. exaggerate their revenue using fraudulent online advertising deals.
Holding top executives criminally responsible for helping others manipulate their balance sheets remains a challenge for investigators. But prosecutors have built a few such cases successfully in the past few years.
Former Merrill Lynch & Co. investment banking chairman Daniel H. Bayly will be sentenced this month for colluding with Enron officials to help Enron meet earnings targets in late 1999. Testimony in Bayly's trial indicated that he participated in a conference call with Enron chief financial officer Andrew S. Fastow, in which Fastow essentially guaranteed that Merrill Lynch would not lose money on an energy deal. The fact that no money was at risk invalidated the business purpose of the deal, making it illegal, prosecutors argued.
That kind of concrete knowledge is necessary to bring criminal indictments and prove to a jury that executives intended to deceive investors, legal experts said.
Investigators are reading e-mails and other documents and interviewing witnesses about Greenberg's role in a 2000 deal the firm struck with General Re. The deal allowed AIG to boost its reserves and keep its stock price high at a time investors were raising questions.
The SEC, the Justice Department, and Spitzer are scheduled to interview Buffett on April 11. Buffett is represented by a Berkshire Hathaway lawyer and has not been notified that his interests diverge with his company's. Buffett's spokeswoman did not return calls, but the company issued a statement this week saying he was not briefed on the "structure" of the deals or their purpose. Buffett is a longtime Washington Post Co. board member.
Former General Re chief executive Ronald E. Ferguson and other Berkshire figures already have been interviewed by regulators and have helped them understand the terms of the complex deals. Darren Dopp, a spokesman for Spitzer, said that for now, investigators are approaching Greenberg and Buffett differently, in part because they have no evidence that Buffett intended to help AIG manipulate its books.
"You've got to show that Warren Buffett or anyone else at Berkshire was aware of the purpose of the transactions, that they didn't have any other independent business reality other than the inflation of numbers at AIG," said John C. Coffee Jr., a corporate law professor at Columbia University.
Martin J. Sullivan, a longtime AIG executive who assumed the chief executive role last month, is not a target of the investigations, an AIG spokesman said. "He's clearly in it for the long haul and that's why the company picked him," Winans said.
