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February 21, 2017
The Big Fall: Greenberg Admits He Oversaw Sleazy Transactions

Hank Greenberg was the biggest man in the insurance business for a long time. His success was spectacular, but when he ran AIG, the business of making the company’s financial statements was something like the business of making sausages—in other words, one didn’t want to see how it was done.


Despite AIG’s great achievements, it nonetheless resorted to a long list of unsavory techniques to make people think it was better than it really was. As explained between 1993 and 2005 in the pages of Schiff’s Insurance Observer (, AIG entered into transactions with nebulous offshore reinsurers, “smoothed” earnings through a variety of tricks, issued deceptive earnings releases, entered into sham reinsurance transactions, engaged in transactions with affiliates that appeared to transfer risk but really didn’t, employed financial prestidigitation to turn underwriting losses into capital losses and capital gains into investment income. These transactions made AIG’s balance sheet appear stronger than it really was, or made the company’s operating income appear higher than it really was.


After Greenberg was ousted in 2005, AIG came clean, restated its financials, and paid $1.6 billion to settle matters with federal and state regulators. But Greenberg steadfastly refused to admit wrongdoing. In 2009, he settled the SEC’s civil fraud charges by paying $15 million—but neither admitted nor denied anything.


The February 10, 2017 settlement with the New York State Attorney General is different. The Wall Street Journal editorial page called it a “vindication” for Greenberg because he didn’t “admit to fraud,” and because the $9 million settlement is just “pin money” to him.


Greenberg’s own statement, however, connects certain dots. He admits that he “initiated, participated in and approved” two transactions. He admits that one “increas[ed] loss reserves” and the other “convert[ed] underwriting losses into investment losses.” He admits that he “certified” AIG publicly-filed financial statements. He admits that he was “aware” that “the financial effects” of those transactions “were…reflected” in the financial statements. He admits that, “as a result of these transactions,” AIG’s financial statements were inaccurate under his watch. And he admits that AIG’s numbers were “correctly restated” in 2005, after he’d been booted out.


Putting up reserves that don’t transfer risk would tend to mislead or deceive investors, as would converting underwriting losses into investment losses. But is it “fraud”? Certainly, it’s no way to treat one’s shareholders.


Greenberg, for the record, has not pled guilty to fraud or admitted to fraud.


So there you have it. A nebulous settlement. Hank Greenberg beat the rap—sort of. Part of it, anyway.


But just because he hasn’t pled guilty to fraud doesn’t mean he’s vindicated. He is, at best, a stained legend. Perhaps he could be called the Pete Rose of the insurance business. He had a great career, but doesn’t belong in any Hall of Fame.


The above comments were written for Joseph Belth’s website as part of a package of information he is offering about Greenberg’s settlement. Joe has also written his own comments.

  As many of you probably know, Joe is a hero of mine and a legend in insurance journalism. (He wrote The Insurance Forum for forty years.) Here’s a link to his essay: