Former American International Group (AIG) chief executive Maurice "Hank" Greenberg and former chief financial officer Howard Smith will pay penalties to settle civil allegations of accounting fraud, the U.S. Securities and Exchange Commission said Thursday.

The lawsuit, filed in a federal court in Manhattan, alleges the men are liable for AIG's numerous accounting violations which helped inflate the now-troubled insurance giant's financial results between 2000 and 2005. Greenberg will pay $15 million in penalties and disgorgement while Smith will pay $1.5 million. Both are settling without admitting or denying the charges.

The SEC says the men should be held responsible for sham reinsurance transactions which made it appear as though the company had increased its general loss revenues. Reinsurance allows insurance companies to completely or partly insure the risk they have assumed for their customers.

Other improper accounting transactions the SEC claims took place included a purported deal with an offshore shell entity to conceal multi-million-dollar underwriting losses from AIG's auto-warranty insurance business, economically "senseless" round-trip transactions to report improper gains in investment income and the purported sale of tax-exempt municipal bonds owned by AIG's subsidiaries to trusts that AIG controlled in order to wrongfully recognize realized capital gains, the SEC said.

"Corporate leaders cannot avoid the truth and consequences of their companies' performance by using improper accounting gimmicks and signing off on distorted financial reports," said Robert Khuzami, the director of the SEC's Division of Enforcement. "Greenberg and Smith oversaw various improper transactions that presented a false financial picture and allowed AIG to claim success in meeting its performance goals."

This latest lawsuit by the SEC comes a little more than three years after AIG settled accounting charges with the SEC by agreeing to pay disgorgement of $700 million and a penalty of $100 million.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com

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