We reported in August on AIG's shaky finances partly because the story has strong connections to Alabama, Mississippi, and our Legal Schnauzer story.
Now, The New York Times is reporting that a San Diego-based financial planner is seeking an injunction that would prevent AIG from transferring money out of state for 90 days. The judge in the case is not expected to make a ruling until after a hearing is held in December. But her findings could have national implications, according to Times reporter Mary Williams Walsh:
If she does grant an injunction in California, it could affect A.I.G.’s customers in other states as well. The companies that make up A.I.G. often participate in internal pools and other group transactions that cross state lines. An injunction barring the participation of insurers in California from some transactions could disrupt flows of money throughout the giant insurance group.
The California lawsuit claims that AIG's holding company orchestrates the movement of money through various insurance units in manner that might be dangerously deceptive:
The motion cited a number of those activities, including off-balance-sheet investment pools, unsecured promises by related entities to backstop one another’s claims, and reinsurance agreements meant “to portray a sound financial picture.”
How does all of this tie to the Deep South? Thomas Gober, a financial fraud examiner, has filed two sworn declarations for the plaintiff in the California case. Gober has a forensic-accounting practice in Mississippi and served as research-compliance director at the University of Alabama at Birmingham (UAB), my former employer. Gober was one of two whistleblowers who brought massive research fraud at UAB to the attention of the federal government. Dr. Jay Meythaler, a rehabilitation-medicine specialist who now is at Wayne State University in Detroit, was the other UAB whistleblower--and we have reported extensively on that case.
Before Gober went to UAB, he worked with the federal government on several high-profile insurance-fraud cases. Perhaps the biggest of those was the case of Allen W. Stewart, a Pennsylvania lawyer who was convicted in the late 1990s on more than 100 counts of fraud, racketeering, and money laundering.
Gober lived in Birmingham at the time, but he worked on the Stewart case because it involved a company called Alabama Reassurance, which was implicated in at least eight counts. Alabama Reassurance is part of the Greene Group, a company owned by Paul W. Bryant Jr., a member of the University of Alabama Board of Trustees.
History indicates that Thomas Gober knows what he is talking about. And here is what he says about the evolving AIG case in California, according to The New York Times:
“It is my professional experience that most ‘sleight-of-hand’ accounting schemes are perpetrated through complex and well-hidden transactions among affiliates and with the holding company,” Mr. Gober wrote.
He went on to describe activities that he said fit a pattern of “pervasive wrongdoing” at the company, dating back to the 1980s. He cited a number of lawsuits and enforcement actions by the New York State attorney general, the Securities and Exchange Commission and the Department of Justice.
Gober learned about the ugly side of the reinsurance business through the Allen W. Stewart case and Alabama Reassurance. He sees similar troubling signs with AIG:
Mr. Gober also pointed out that A.I.G.’s longtime head of reinsurance was convicted of several business felonies in 2008, and that a vice chancellor of the Delaware chancery court had described the company’s “inner circle” of executives as a “criminal organization” in an opinion last February.
Is the story of AIG's bailout a settled matter? Not by a long shot. And we will be following it here at Legal Schnauzer.