Sunday, July 26, 2009

Don't you wish you could go OFF balance sheet? AIG FPG - SEC's Wells Notice - not the first time - SEC sued AIG FPG when? 2004

The SEC sued AIG FPG in when? 2004 for 2001 and 2002 events -
(full copy of SEC Complaint)

From at least March 2001 through January 2002, American International Group, Inc. (“Defendant AIG”), primarily through its wholly owned subsidiary AIG Financial Products Corp. (“AIG-FP”), (collectively referred to herein as “AIG”) developed, marketed, and entered into transactions that purported to enable a public company (or “counter-party”) to remove certain assets from its balance sheet.

For a fee, AIG offered to establish a special purpose entity (“SPE”) to which the other party to the transaction would transfer troubled or other potentially volatile assets. AIG represented that, under generally accepted accounting principles (“GAAP”), the SPE would not be consolidated on the counter-party’s financial statements.

The counter-party thus would be able to avoid charges to the income statement of its financial statements resulting from declines in the value of the assets transferred to the SPE.

The transaction that AIG developed and marketed, however, did not satisfy GAAP requirements of GAAP for nonconsolidation of SPEs.

Post 2004, (the heart of the hockey stick era) when companies like AIG effectively helped issuers to create new off balance sheet, special purpose entities outside of the jurisdiction SEC registration statements one must wonder what and how the new, improved and wrinkle-free AIG FPG services including credit default insurance post 2004 were in the best interests of customers.

Note: In this past week's Mr Geithners' testimony a Senator recited a bit of GSE history HUD 2004 bought $175B in zero down payment mortgages, in 2005 HUD backed $1 Trillion in 100% zero down mortgages - yes from near zero to $1.2 Trillion in 2 years. Wall St's mortgage backed mortgage securitization machine with aid from the likes of AIG FPG set leveraged bets where? OFF BALANCE SHEET.

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