False Impressions

Given the tumult of the past year, it's easy to forget that AIG's troubles go back a lot further than the current financial crisis. In August, an SEC complaint alleged former CEO Maurice "Hank" Greenberg and former CFO Howard Smith were ultimately responsible for a series of improper accounting transactions from 2000 to 2005 that were geared to create the false impression the company had met or exceeded critical earnings and growth benchmarks. The four-year fraud investigation concluded when former Greenberg settled with the SEC and paid $15 million in penalties and disgorgement.

Greenberg, whose name was synonymous with the insurance titan for four decades, did not admit guilt, but consented to a judgment Aug. 6, just hours after the charges were announced. Smith also consented to a judgment and agreed to pay $1.5 million.

Such high-profile allegations generally spur parallel criminal and civil investigations. As often as not, the DOJ folds somewhere along the way, unable to meet the higher burden of proof beyond a reasonable doubt. Then begins what can be a long negotiation between the SEC and the investigation target over the charges and settlement terms, which are ultimately announced at about the same time.

"Between 80 percent and 90 percent of the SEC's cases are resolved this way," Mann says. "It is a very typical SEC approach to file, essentially, as a settled proceeding."

Surgical Approach

La Bella, who worked with Khuzami as a prosecutor in the Southern District of New York, says he expects the SEC to adopt its new enforcement director's no-nonsense approach to cases. As a prosecutor, Khuzami was known for efficiency and a clear-eyed prioritization of the most serious, and winnable, cases.

Contributing Author

Steven Andersen

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