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Friday, 7 August 2009

Wall Street's indulgences

The US financial system apears to have revived a practice of the Catholic church, namely the sale of indulgences. Witness the extraordinary settlements with the SEC this week by GE (NYSE:GE) and Maurice Greenberg, former chairman of AIG (NYSE:AIG) who prefers to be known as "Hank".

It seems that after absolution of the guilty from their sins and payment of alms to the SEC pardoner, $50 million in the case of GE, $15 million from Mr Greenberg, the soul is restored to its former godliness and the matter is laid to rest.

A complaint filed by the SEC said Greenberg and former chief financial officer Howard Smith were involved in "numerous improper accounting transactions" that inflated AIG's reported financial results between 2000 and 2005. Mr Smith agreed to pay $1.5 million to settle the charges.

Robert Khuzami, director of the SEC's Division of Enforcement, read Mr Greenberg a sermon to the effect that "Corporate leaders cannot avoid the truth and consequences of their companies' performance by using improper accounting gimmicks and signing off on distorted financial reports."

But the the law firm representing Mr Greenberg stressed that its client was not charged with fraud. Rather, they tell us that the SEC charges arose solely as by virture of the fact that Greenberg was running AIG when the suspect accounting took place: "Mr. Greenberg appreciates the SEC's recognition that he personally should not be charged with any fraud and the settlement is recognition of his lack of responsibility, even as a control person, for the vast majority of accounting issues."

That may be the trouble with corporate America. With so many company directors trousering hundreds of millions, it must be tough to find enough hours in the day to spend all that money and still run the company.

Time for a Reformation perhaps?

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