The WSJ reports that Eliot Spitzer is set to exact a billion dollar ransom from AIG so that AIG can avoid the risk of a regulatory death sentence Spitzer has been threatening it with. This is to settle a suit over supposed accounting improprieties. A continuing bone of contention, according to the WSJ, is whether AIG is going to have to saddle itself with restrictions on contingent commissions from brokers that don’t apply to AIG’s competitors.
As I discussed here last August, the case is far from clear. Nevertheless, as I summarized then:
the team that replaced [Greenberg] questionably restated financial results to the tune of minus $2.26 billion in shareholder equity. For example, the new AIG expensed nearly $500 million in executive compensation that had been handled through Starr International for AIG’s benefit and added $850 million in liability reserves without any obvious changes in liability risk.
Meanwhile, AIG's stock was getting pummeled. I asked:
If these were merely accounting matters, it’s not clear how they so affected AIG’s prospects, and therefore its stock price. Was the previous accounting, or is the present accounting, misleading the market?
Or maybe it was the threat of what Spitzer might do to the company, or possibly simply because Hank Greenberg is gone and the market doesn’t think his successor will be as successful.
So this looks like it may be a sad case of regulatory extortion. Fortunately we may find out. Spitzer is going to actually have to go into a real court against Greenberg who, like Grasso, is not playing dead. Spitzer's record in court has been less than stellar.
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