F A L L E N G I A N TCase Study of American International Group, Inc.

RUDRAKSHI SINGH

O V E R V I E WAmerican International Group, Inc. (AIG) is a world leader in insurance and financial services.

It is headquartered in New York City, and operates in more than 130 countries and jurisdictions.

Its primary activities include General Insurance and Life Insurance & Retirement Services.

NYC

In 2006, AIG had sales of $113 billion and 116,000 employees (Saporito, 2009).

According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world.

It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008.

AIG's common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.

London, England

O V E R V I E W

H I S T O R Y

Cornelius V. Starrstarted AIG as “American Asiatic Underwriters” in 1919 in Shanghai (Madsen 2008).

H I S T O R Y

Greenberg was fired due to accounting scandal in February 2005, and was succeeded as CEO by

Martin J. Sullivan.On June 15, 2008, Sullivan resigned and was replaced by

Robert B. Willumstad, Chairman of the AIG Board of Directors.Willumstad was forced by the U.S. government to step down and was replaced by

Edward M. Liddy on September 17, 2008.

WHAT HAPPENED??-Fraudulent activity continued to happen through 2001-2008

-Recorded loans as revenue

-Sold bonds within the company when value raised to record as income

-Hid losses in financial statement

-Didn’t record deferred acquisition costs in a timely manner

-Paid insurance brokers to steer business to AIG

-Uses collateral to buy mortgage backed securities

C A U S E S O F

F A I L U R E

IMPROPER ACCOUNTING

AIG’s PURCHASE AND SALE OF ‘’NON TRADITIONAL INSURANCE’’

BID-RIGGING PROCESS

LACK OF VALUES AT AIG

CREDIT DERIVATIVESPOOR REGULATORY OVERSIGHT

NO COLLATERAL REQUIREMENT

CARELESS RISK MANAGEMENT

NYC

CAUSES OF FAILURE

RESULT OF THE SCANDAL-16 ALLEGED VIOLATION

-CONSPIRACY

-SECURITY FRAUD

-FALSE STATEMENT TO SEC

-MAIL FRAUD

-LARGEST QUARTERLY LOSS IN THE HISTORY OF $61.7 BILLION

IMPACT OF THE SCANDAL

•Employees: The employees were told to buy the shares to help sustain the company’s losses

•Company: The Company fired its CEO and CFO. They even lost the interest of investors and shares.

•Government: AIG being one of the leading insurance Company in the world. The scandal created great negative impact in the Government.

•Public: the people had to lose a lot because all their insurance was at lot of risk during the scandal.  

L E S S O N S L E A R N E D

•The official securities should more research about the company and try to solve the problem right away. • The government should track these transactions between companies because in this scandal it shows that the government didn’t know about the violations until the company themselves exposed.

• They should always keep an eye on the top people because in this case the CEO Hank Greenberg and CFO Howard Smith were the main culprits.

• The government should always keep a close track of the companies accounts to check if there’s any fraud activity.

• Moreover the people or investors should take initiative to keep a close attention towards any company’s net income before investing.

CONCLUSIONBetween the CDS and securities lending, AIG still has lots of work to do. The government’s burden of AIG will not go away anytime soon.

AIG has "made meaningful progress," but the company is still at the mercy of the economy (Saporito, 2009).

In the businesses it wants to keep, like commercial insurance, competitors see an opportunity to grab market share. For the assets it wants to sell, there are few buyers. What remains is still a giant, vulnerable company.