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Aig -- Ohio Complaint.Pdf TABLE OF CONTENTS I. NATURE OF THE ACTION AND KEY ADMISSIONS................................................. 2 A. THE BID-RIGGING AND CONTINGENT COMMISSIONS SCHEME ................................................................................................................ 7 B. THE BRIGHTPOINT AND PNC DEALS............................................................. 8 C. AIG FALSIFIED ITS FINANCIAL STATEMENTS............................................ 8 D. GREENBERG’S REPEATED ATTEMPTS TO INFLATE THE PRICE OF AIG STOCK BY MANIPULATING THE MARKET...................... 11 II. JURISDICTION AND VENUE....................................................................................... 14 III. PARTIES .......................................................................................................................... 15 A. LEAD PLAINTIFF............................................................................................... 15 B. AMERICAN INTERNATIONAL GROUP DEFENDANTS.............................. 16 1. American International Group, Inc........................................................... 16 2. Maurice R. “Hank” Greenberg ................................................................. 16 3. Howard I. Smith........................................................................................ 18 4. Martin J. Sullivan...................................................................................... 19 5. Thomas R. Tizzio...................................................................................... 20 6. Michael J. Castelli..................................................................................... 20 7. Christian M. Milton .................................................................................. 21 8. L. Michael Murphy................................................................................... 21 9. John A. Graf.............................................................................................. 22 10. Frank J. Hoenemeyer ................................................................................ 23 11. Eli Broad................................................................................................... 25 C. STARR INTERNATIONAL COMPANY, INC. ................................................. 26 D. C.V. STARR & CO., INC..................................................................................... 29 - i - E. UNION EXCESS REINSURANCE COMPANY, LTD...................................... 32 F. RICHMOND INSURANCE COMPANY LTD. .................................................. 32 G. PRICEWATERHOUSECOOPERS...................................................................... 33 H. GENERAL REINSURANCE CORP. DEFENDANTS ....................................... 35 1. General Reinsurance Corp. ....................................................................... 35 2. Ronald E. Ferguson................................................................................... 35 3. John B. Houldsworth ................................................................................ 36 4. Richard Napier.......................................................................................... 37 I. UNDERWRITER DEFENDANTS ...................................................................... 37 1. Wachovia Securities, Inc. ......................................................................... 37 2. Merrill Lynch & Co. ................................................................................. 38 IV. CONTROL ALLEGATIONS/GROUP PLEADING....................................................... 38 V. CLASS ACTION ALLEGATIONS................................................................................. 40 VI. FACTUAL ALLEGATIONS ........................................................................................... 43 A. BACKGROUND ON AIG ................................................................................... 43 B. GREENBERG’S 37-YEAR IRON-FISTED REIGN AT AIG ............................ 44 C. RELEVANT ACQUISITIONS BY AIG DURING THE CLASS PERIOD ................................................................................................................ 49 1. HSB Group................................................................................................50 2. American General..................................................................................... 52 D. AIG’S BOND OFFERINGS DURING THE CLASS PERIOD........................... 55 1. Zero Coupon Convertible Senior Debentures........................................... 55 2. 0.5% Cash Exchangeable Equity-Linked Senior Notes............................ 56 3. 2.85% Medium-Term Notes, Series F ...................................................... 58 4. 2.875% Notes............................................................................................ 61 5. 4.25% Notes.............................................................................................. 61 - ii - E. AIG’S PAYMENT OF CONTINGENT COMMISSIONS AND PARTICIPATION IN ILLEGAL BID-RIGGING ............................................... 62 1. Background on the Insurance Industry ..................................................... 64 2. Contingent Commissions.......................................................................... 65 3. Bid-Rigging............................................................................................... 68 a. How the Bid-Rigging Scheme Worked ........................................ 69 4. Insurance Brokers Respond to the Spitzer Complaint .............................. 75 5. To-Date, Four AIG Executives and Numerous Executives of Marsh and Other Companies Have Pleaded Guilty or Have Been Indicted In Connection with the Bid-Rigging Scheme...................................................................................................... 76 6. AIG and Greenberg Respond to the Spitzer Complaint............................ 88 F. AIG USED INCOME SMOOTHING PRODUCTS AND OTHER TECHNIQUES TO FALSELY INFLATE ITS EARNINGS............................... 92 1. AIG Improperly Used A $500 Million Finite Reinsurance Deal with General Re to Falsely Improve Its Financial Statements................................................................................................. 94 a. Background on Claims Reserves, Reinsurance and Relevant Accounting Rules........................................................... 94 b. Background on the AIG-General Re Transaction......................... 96 c. The Government Begins Investigating AIG’s Accounting for the General Re Transaction and Some Details of the Improper Deal Are Disclosed....................... 99 d. AIG Admits That It Misled Investors and Regulators ................................................................................... 101 e. AIG Admits Improperly Accounting for Its Transactions with General Re, Union Excess, Richmond and Others ................................................................. 103 f. Full Details of the AIG-General Re Deal Emerge...................... 108 i. Greenberg Initiates the Improper AIG- General Re Deal.............................................................. 109 - iii - ii. Senior AIG and General Re Executives Negotiate and Structure the Transaction With Full Knowledge It Involved No Real Transfer of Risk .............................................................. 110 iii. AIG And General Re Engage in Additional Transactions to Effectuate the Undisclosed Side Agreements That Concealed the True, Improper Nature of the AIG-General Re Deal................................................................................. 122 g. Effects of the Improper AIG-General Re Deal........................... 123 h. Regulatory Fallout From the AIG-General Re Deal................... 126 2. AIG Concealed Its True Relationship With Union Excess and Richmond to Allow the Company to Improperly Account for Its Reinsurance Transactions With Those Entities .................................................................................................... 131 a. AIG’s History of Concealing from Regulators the Company’s True Relationship with Its Off-Shore Reinsurers ................................................................................... 135 b. During the Government’s Investigation Into AIG’s Reinsurance Transactions, Defendants Removed and/or Destroyed Evidence at AIG’s Bermuda Offices......................................................................................... 142 3. Defendants Used “Top Side” Adjustments to Improperly Boost AIG’s Claims Reserves and Other Accounts ............................... 144 4. AIG Engaged in Multiple Transactions to Make Its Underwriting Results Appear More Favorable Than They Actually Were ......................................................................................... 147 a. AIG Disguised Its Underwriting Losses..................................... 149 i. Auto Warranty Losses.....................................................149 ii. Brazilian Life Insurance Losses...................................... 155 (a) Nan Shan I........................................................... 156 (b) Nan Shan II ......................................................... 157 b. AIG Created False Underwriting Income By Improperly Accounting for Revenues From Its “Life Settlements” Business................................................................. 158 - iv - 5. The Government Investigates AIG’s Loss Ratio.................................... 161 6. AIG’s
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