A Forex View From Afar

AIG falsified the financial statement

Written by A Forex View From Afar on Monday, June 02, 2008

Get your money back from AIG

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If you purchased American International Group, Inc., (“AIG”) common stock or certain AIG or AIG-affiliated fixed-income securities between February 8, 2001 and March 31, 2005, you may be eligible for compensation.

The Background;

“The United States Securities and Commission (the “Commission”) filed a complaint in this action on February 9, 2006, alleging that from at least 2000 until 2005, AIG materially falsified its financial statements through a variety of sham transactions and entities and that AIG reported materially false and misleading information about its financial condition. On February 17, 2006, the United States District Court for the Southern District of New York (the “Court”) entered a Final Judgment against AIG, to which AIG consented without admitting or denying the allegations of the Complaint. Pursuant to the Final Judgment on March 3, 2006, AIG paid a total of $800 million ($700 million in disgorgement and a civil penalty of $100 million) to the Clerk of the Court. The funds were thereafter deposited in an interest-bearing account with the Court Registry Investment System (“CRIS”). In an order of June 14, 2007, the Court authorized the Commission to establish a Fair Fund in accordance with Section 308(a) of the Sarbanes-Oxley Act. The Fair Fund includes all of the funds in the CRIS account established in this action and any other amounts subsequently paid into that account. The Court’s order also appointed Kenneth R. Feinberg as Distribution Agent to prepare and propose to the Court a plan of distribution for the Fair Fund. The Court approved the Distribution Plan on April 14, 2008”.

This is funny, a financial company that changed its financial statement. Probably all financial companies should be sued for this. Some time ago, there was a minor indignity where Hedge Funds reported leverage data to appear bigger. No serious actions were taken at that time, so what did the AIG do to actually get a fine? AIG only had to deliberately release a bigger balance book to get this fine, bigger with $2.7 billion or a 3.3%. This is quite interesting for me. I wonder if the SEC will take any measures against the sub-prime originator.

At least AIG acted outside the law’s short arm, but Merrill Lynch & Co., Citigroup Inc. and four other U.S. financial companies dodged balance sheet rules with laws introduced last year, to increase the book value of $12 billion of revenues from bonds who’s price had declined; it is legal too if anyone asks.

Basically, the financial companies issued bonds, let say, for example, worth $1000. After the sub-prime saga began, their bonds started to get sold, because investors saw them as over-valuated (actually as a worthless paper). As the bond prices went down the financial companies said they owed less money, and so, if the bond’s value dropped to $600, they would still book a profit of $400.

In this fantasy world they would still owe $1000, but $600 is the current market value of their debt. Nice pull guys, I really like your creativity and ingenuity since you were the ones to lobby last year for the law that makes all this possible.


Source:
SEC/AIG Fair Fund
Bloomberg: Wall Street Says -2 + -2 = 4 as Liabilities Get New Bond Math