AIG acknowledges improper accounting

updated 6:56 p.m. ET March 30, 2005

NEW YORK - Amid widening government probes into its financial practices, insurance giant American International Group Inc. acknowledged Wednesday it had improperly booked transactions with a unit of Berkshire Hathaway Inc. that artificially boosted its reserves.

AIG also said that it had not yet completed an in-house review of its accounting and would have to delay filing its annual report until April 30. New York-based AIG earlier had said it expected to file the report on March 31.

The disclosures came as the Securities and Exchange Commission and New York Attorney General Eliot Spitzer were preparing to question AIG’s former chief executive officer, Maurice “Hank” Greenberg, and Berkshire Hathaway’s chairman and CEO, billionaire investor Warren Buffett, next month about the controversial reinsurance deal. Buffett is to speak with investigators on April 11, and Greenberg the following day.

Berkshire Hathaway has said that Buffett was not aware of how the transactions were structured “or on any improper use or purpose” of the transactions.

Greenberg, who is 79 and led AIG for nearly 40 years, was forced out as CEO by the board earlier this month and has said he will resign shortly as chairman of the company.

In a detailed four-page statement, AIG also disclosed a number of other accounting problems, including the way it booked deals with Caribbean-based insurance companies.

AIG said, however, that “the maximum aggregate effect” of known errors and changes in accounting would reduce the company’s $82.87 billion in capital by about $1.7 billion, or 2 percent.

Howard Mills, acting superintendent of New York state’s insurance department, which is also participating in the investigation, called AIG’s statement “pretty significant” and added: “These are very serious issues, and their own admission that they misled this department, we take very seriously.”

Mills said that AIG needs to continue “to get their house in order, and we believe they will do so.”

Analysts at Morgan Stanley said that “some investors may take comfort that details are beginning to emerge” on AIG’s side. They added, however, that “the depth and breadth of troubles and apparent lack of accounting controls at AIG is alarming, in our view.”

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