U.S. Securities and Exchange Commission
Litigation Release No. 18340 / September 11, 2003
Accounting and Auditing Enforcement Release No. 1858
(S.D.N.Y. Civ. 03 CV 7045 (HB)
SEC Sues AIG, Brightpoint and Three Individuals in Accounting Fraud Case
AIG Settles Action and Agrees to Pay $10 Million Penalty
Washington -- The Securities and Exchange Commission announced today
that it filed a civil accounting fraud action in federal district
court in the Southern District of New York against American
International Group, Inc. (AIG), Brightpoint, Inc. (Brightpoint) and
two former officers and a former employee of Brightpoint,
respectively, Phillip Bounsall (Bounsall), John Delaney (Delaney) and
Timothy Harcharik (Harcharik). All of the defendants except Harcharik
have consented to the entry of final judgments in settlement of this
matter. The Commission also announced today that it instituted
separate settled cease-and-desist proceedings against Brightpoint,
AIG, Bounsall and an AIG employee.
The civil and administrative actions involve the role played by AIG,
one of the world's largest insurance underwriters, in enabling
Brightpoint, a public reporting company, to commit securities fraud.
As a sophisticated financial services provider, AIG played an
indispensable part in the fraudulent transaction by selling
Brightpoint a new "insurance" product that AIG had developed and
marketed for the specific purpose of helping issuers to report false
financial information to the public.
Beginning in 1997, AIG developed and marketed a so-called
"non-traditional" insurance product for the stated purpose of "income
statement smoothing," i.e., enabling a public reporting company to
spread the recognition of known and quantified one-time losses over
several future reporting periods. The key to achieving the desired
accounting result was to create the appearance of "insurance," i.e.,
that the "insured" (Brightpoint) was paying premiums in return for an
assumption of risk by AIG, when, in fact, Brightpoint was merely
depositing cash with AIG that AIG refunded to Brightpoint.
In this case, AIG issued such a purported insurance policy to
Brightpoint for the purpose of assisting Brightpoint to conceal $11.9
million in losses that Brightpoint sustained in 1998. Brightpoint's
chief accounting officer, Delaney, and its director of risk
management, Harcharik, negotiated the purported policy with an AIG
assistant vice president. Brightpoint's chief financial officer,
SNIPPETS:
U.S. Securities and Exchange Commission
SEC Sues AIG, Brightpoint and Three Individuals in Accounting Fraud Case AIG Settles Action
Washington -- The Securities and Exchange Commission announced today that it filed a civil
The civil and administrative actions involve the role played by AIG, one of the world's
As a sophisticated financial services provider, AIG played an indispensable part in the
Beginning in 1997, AIG developed and marketed a so-called "non-traditional" insurance product
AIG issued such a purported insurance policy to Brightpoint for the purpose of assisting
Brightpoint's chief accounting officer, Delaney, and its director of risk management,
However, by December 1998, the UK losses had mushroomed to about $29 million, and
The parties agreed to combine this "retroactive coverage" with prospective fidelity coverage
The "cost" of the $15 million "retroactive coverage" to Brightpoint was about $15 million,
On November 13, 2001, Brightpoint announced a restatement, which treated the Policy as real,
Based on the facts alleged, in the civil action the Commission charged * Brightpoint with
Exchange Act Rule 13b2-2 for making materially false statements to the Auditors.
In connection with the settlements, AIG agreed to pay a civil penalty of $10 million,
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