Former American International Group chairman Maurice “Hank” Greenberg has agreed to settle charges of improper accounting transactions during his leadership of the insurer for $15 million.

Maurice "Hank" Greenberg

The U.S. Securities and Exchange Commission alleges that Greenberg and former AIG CFO Howard Smith were responsible for material misstatements enabling AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets, according to the regulator.

The alleged transactions occurred between 2000 and 2005, the SEC said, with Greenberg and Smith liable as “control persons” for AIG’s violations of the antifraud and other provisions of national securities laws.

Smith, who is also charged with direct violations of the antifraud and other provisions of securities laws, has agreed to a $1.5 million settlement.

Greenberg served as AIG’s CEO for 38 years, until 2005 when the company dismissed him amidst a probe by then-New York Attorney General Eliot Spitzer into reinsurance matters.

In May, a federal jury cleared Greenberg of having to repay his former company more than $4 billion AIG alleges he improperly took with him to create the company he currently runs, C.V. Starr & Co. The final decision in that matter will come from a federal judge.

The SEC allegations indicate that Greenberg publicly described AIG as the leader in the insurance and financial services industry but the insurer faced numerous financial challenges under his leadership disguised by improper accounting.

In 2006, the SEC charged AIG with securities fraud and improper accounting. The company settled those charges in part through a $700 million disgorgement and $100 million fine.

Robert Khuzami, director of the SEC’s Division of Enforcement, said leaders of corporations “cannot avoid the truth and consequences of their companies’ performance by using improper accounting gimmicks and signing off on distorted financial reports.”

“Greenberg and Smith oversaw various improper transactions that presented a false financial picture and allowed AIG to claim success in meeting its performance goals,” he said in a statement.

In a statement to IFAwebnews.com through C.V. Starr, Greenberg said he is pleased the SEC’s investigation has come to a conclusion and he does not admit any of the claims against him.

“He acknowledges the obvious fact that he was CEO of AIG at the time of the accounting at issue,” the statement said. “He believes that this is an appropriate basis to resolve the SEC’s investigations and put these issues behind him.”

Among the improper accounting transactions in the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, are “sham reinsurance transactions” to make it appear AIG legitimately increased its general loss reserves and “economically senseless” round-trip transactions to report improper gains in investment income.

The complaint alleges Greenberg knew the effects that certain improper transactions would have on the insurer’s reported financial results, and that he and Smith were responsible for false and misleading public statements and material omissions in quarterly reports in 2002 and in 2005, AIG restated its prior accounting for transactions including those in the SEC complaint.

Neither Greenberg nor Smith admitted or denied the SEC’s allegations in the settlement. Greenberg will pay a fine of $7.5 million and return another $7.5 million the SEC says he obtained improperly; Smith will pay a fine of $750,000 and return an additional $750,000.