[During 2006 and 2007, company insiders sold AIG stock heavily. Insider transactions are made public very shortly after they occur. These sales seem to have been ignored by the market. Between September 25, 2007 and October 17, 2007, interests controlled by the former chairman of the company, Maurice ‘Hank’ Greenberg sold 9 million shares of stock at prices between $66.50 and $69.35. It was all downhill from there.

The insider sales were bad news, but they are not the bad news I mentioned earlier. The other bad news about AIG occurred between 2000 and 2006. The company engaged in a number of different frauds. They led to the resignation of Greenberg in June of 2005. These frauds led to both civil and criminal prosecutions and convictions of officers of the company. Greenberg was not among them. We know that he made one telephone call to his CEO that instigated the operation that led to one fraud. He was named an unindicted co-conspirator.

Greenberg exercised his Fifth Amendment rights before investigators from the SEC and New York Attorney General Eliot Spitzer’s office shortly before he resigned. Spitzer made Greenberg a target; he was persuaded that the company was engaged in many kinds of questionable activities. The downfall of both these men has about ended that conflict. Greenberg was the guiding force behind the company for many years and still makes public comments about what should be done about AIG. He is rumored to be interested in regaining control. However, he sold most of his stock recently. Greenberg has solid establishment credentials and interesting connections. At one time, he held the highest posts at the New York Federal Reserve Bank. He is on both the Council on Foreign Relations and the Trilateral Commission. He was offered the post of Deputy Director of the CIA (he turned it down).

The kinds of frauds that were committed had to be known by Greenberg and AIG’s upper management, and the public record clearly suggests this, although Greenberg was never indicted. The working culture and ethos of the company had to be such as to encourage or tolerate such frauds. Furthermore, once there had occurred more than one of these frauds, investors should have been alert to the possibility of more hidden business practices that, if uncovered, presented serious risks to an investor. And they should have been alert to the possibility that factors such as high growth and profits might have been the result of cooking the books. This is Monday morning quarterbacking, I concede, but the fact is that the frauds were public information. Furthermore, there is a history of financial company frauds with certain earmarks that goes back to the failures of many large S & Ls in the 1980s. Once frauds were turned up at AIG, some of which depended on accounting manipulations, investors should have very carefully scrutinized AIG’s use of offshore subsidiaries, its entry into many and diverse insurance lines, and its high growth by acquisitions. These run precisely parallel to the kinds of things that high growth S & Ls did before they failed in the midst of frauds.

In other words, it is just possible that some of the large losses booked by AIG in 2008 that have dropped the stock price so drastically have arisen from some things other than the credit default swap contracts that went sour.

In 1997, AIG began to market an "insurance" product that allowed companies buying it to smooth their reported income. It was an unconventional retroactive insurance by which a company with losses or earnings shortfalls might "insure" against them, report higher earnings, and later on, when premiums were due, take the losses into income at a time when they would be offset by higher income (hopefully). This accounting manipulation was, in essence, fraudulent, since the company using the technique was deceiving investors as to the true condition of the company’s operations. It amounted to a kind of loan that is taken into income and later repaid. There is no transfer of risk as there would be in real insurance.

The SEC brought charges against AIG in two instances of this product. By the end of 2004, the civil cases were settled and AIG paid out $126 million.

In 2004, in a separate matter, two employees of one of AIG’s units pled guilty to bid-rigging felonies.

In early 2005, a new investigation began. This case was about AIG manipulating its own loss reserves by buying an insurance product from General Reinsurance, which is a unit of Berkshire Hathaway. This case eventually led to the conviction of four General Re executives and one AIG executive. The fines came to $1.6 billion.

In March of 2005, on this matter, AIG announced that it would delay filing its 10-k statement, that its accounting for reserves had been improper, and that some of its other accounting might also have to be revised.

William Wilt, who was an analyst for Morgan Stanley, wrote: "Some investors may take comfort that details are beginning to emerge, however, we are inclined to focus on the depth and breadth of the apparent accounting deceptions." This remark should be understood in the context that security analysts usually are not bearish.

AIG in May of 2005 said that "certain former members of senior management" were able "to circumvent internal controls." A Wall Street Journal article said: "The [AIG] statement added that accounting entries that boosted AIG’s net worth by about $100 million since 2000 ‘appear to have been made at the direction of certain former members of senior management without appropriate support.’ The statement didn’t name the former executives, but people familiar with AIG’s continuing review by two outside law firms said the references included Mr. Greenberg and Howard I. Smith, AIG’s chief financial officer until the company ousted him in March for refusing to cooperate with investigators. Government regulators also have documents and testimony suggesting the two former executives were behind financial moves that smoothed or boosted the company’s earnings in recent years, people familiar with the matter said.” These moves included deals (that were not at arms-length) with offshore reinsurance subsidiaries in Barbados and Bermuda. In addition, top-level moves managed to increase reported earnings by classifying capital gains income as investment income. Press reports appeared that the outside auditor had found “material weakness” in AIG’s financial controls.]

Gee, Mr. Byrnes, this sure sheds an ENTIRELY different light upon “legendary CEO Maurice “Hank” Greenberg”, now doesn’t it? You leave the reader with the impression Maurice was just a poor victim of an overzealous AG. NOTHING could be further from the truth, now could it? You leave the reader with the impression there were no criminal indictments or convictions in these matters. Nothing could be further from the truth, now could it?

I think it plain you didn’t do your homework on this subject. I give you a “D-” for the Spitzer article.

In light of the now $150+ billion (and counting) AIG has sucked up in taxpayer monies this past year, and the allegations that after “stepping down” Greenberg funneled AIG funds to his “new” corporation, and the odorous relationship between the ratings agencies he cites in article and the banking houses they provided “services” to, in regards to the “subprime” disaster, would Patrick want to reconsider his attacks on Spitzer?

Just asking…..