- The American nation, from the President down, is outraged
over the continuing multi-million dollar bonuses to AIG executives and
traders after $180 billion in public funds have gone to shore up this massive
insurance firm. At AIG, especially in its London operation, massive numbers
and amounts of insurance policies were written to ensure risky trades by
customers. Policies that largely did not have any reserve set aside to
cover payouts.
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- Similar totally irresponsible actions are behind the
troubles at many Wall Street firms and banks. Executives and traders engaging
in business deals that resulted in short term profits for the firm, and
very high bonuses for themselves, but ended up costing the firms stockholders
truly massive amounts of money and the taxpayers even more money in the
form of bailouts to cover the criminal behavior.
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- I use the word "criminal" here because that
is what was happening and not just in a broad layman's use of the word.
Fraud is generally defined in law as an intentional misrepresentation of
a material existing fact, made by one person to another, with knowledge
of its falsity and for the purpose of inducing the other person to act,
and upon which the other person relies with resulting injury or damage
(which can include loss of money). Fraud may also be made by an purposeful
failure to state material facts or by an omission, which nondisclosure
makes other statements misleading.
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- In the case of AIG the fraud was two-fold: (1) The stockholders
were relying on the corporate officers and employees to write insurance
policies that were both profitable and reasonable in the sense of a reasonable
risk to the corporation; (2) The parties paying for the insurance coverage
were relying on the corporation to insure their risk and to be able to
pay the insured amount in the event of a legitimate claim. In both cases,
the corporate officers and those selling/writing the policies knew or should
have known that setting aside NO RESERVES or very small reserves placed
the corporate stockholders and the policy holders at grave risk.
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- The corporate officers and those selling/writing the
policies were profiting from the high profit sales of these insurance policies,
without reserve amounts being maintained, by the receiving of large bonuses
and other remuneration based on the short-term profits from the sales of
the policies without regard to the mid and long-term consequences to the
corporate stockholders or to the policy holders. This constitutes fraud.
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- It does not matter if the exotic policies were in a insurance
law loophole or not. What matters is that the corporate officers and employees
engaged in fraud by selling policies without regard to the stockholders
or to the policy holders, and knew or should have known from normal insurance
practices that selling insurance policies without significant reserve amounts
set aside to cover claims was certain to cause substantial loss to both
stockholders and policy holders. The resulting crisis caused by the AIG
policies is 'Prima Facie' evidence of same.
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- The corporate officers and those employees involved engaged
in fraud against the corporate stockholders; they also engaged in fraud
against the policy holders. They should be tried for criminal fraud at
the Federal level and/or at the state level. This can be undertaken by
the US Department of Justice or by State Attorney Generals or local county
prosecutors in jurisdictions where either stockholders and/or policy holders
reside or do business in.
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- Similar cases of fraud exists throughout the many investment
banks and institutions currently receiving billions in federal bailout
money. We have not yet seen criminal prosecutions of these matters but
the public is totally outraged and the crimes are massive in scope. It
is high time that federal and state/local prosecutors begin a parade of
corporate officers and senior employees before grand juries for criminal
indictments and the resulting criminal trials.
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- Not only billions but trillions of dollars have been
lost to these multiple frauds and it is time that the criminals responsible
face the law. Our very system of government demands that the guilty parties
be brought to justice.
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- Stirling
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