Former American International Group chairman and CEO Maurice “Hank” Greenberg and former vice chairman and CFO Howard Smith have agreed to pay $15 million and $1.5 million, respectively, to settle SEC charges that they were involved in improper accounting transactions that inflated AIG’s financial results between 2000 and 2005.

The SEC said that Greenberg and Smith were liable as the control persons for AIG’s violations of antifraud and other securities laws provisions, and charged Smith with direct violations. According to the SEC, they were responsible for material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets.

Greenberg said in a statement that the SEC’s complaint did not blame him “for the vast majority of accounting issues” and did not charge him with fraud.

However, according to the SEC, Greenberg publicly described AIG as a leader in the insurance and financial services industry with a history of delivering consistent double-digit growth, even though AIG faced numerous financial challenges under his leadership that were disguised through improper accounting. The SEC previously charged AIG in 2006 with securities fraud and improper accounting, and the company settled the charges by paying disgorgement of $700 million and a penalty of $100 million, among other remedies.

“Corporate leaders cannot avoid the truth and consequences of their companies’ performance by using improper accounting gimmicks and signing off on distorted financial reports,” said Robert Khuzami, director of the SEC’s Division of Enforcement, in a statement. “Greenberg and Smith oversaw various improper transactions that presented a false financial picture and allowed AIG to claim success in meeting its performance goals.”

The SEC's complaint, filed in federal district court in New York, charged Greenberg and Smith with creating sham reinsurance transactions to make it appear that AIG had legitimately increased its general loss reserves. A purported deal with an offshore shell entity concealed multimillion-dollar underwriting losses from AIG’s automobile warranty insurance business. The executives were also accused of creating “economically senseless” round-trip transactions to report improper gains in investment income, and with the purported sale of tax-exempt municipal bonds owned by AIG’s subsidiaries to trusts that AIG controlled in order to improperly recognize realized capital gains.

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