AIG’s Board Blind-Sided by Optimism

In a written response to a lawsuit filed by shareholders in a New York federal court, AIG conceded that its executives were, at times, too optimistic, but denied any intent to deceive investors, “Being wrong or even unwise, in hindsight, is not the same as violating the securities laws.”

In defending itself against the shareholders’ lawsuit, AIG contends, “Statements of optimism about the future…that turn out to be wrong are simply not actionable. Even in times of market turmoil, the company need not presume the worst about its market prospects.”

So, AIG executives weren’t dishonest, they were incompetent.

To investors and the public, does it really matter whether company executives are dishonest or incompetent?  Both have the potential to have a negative impact on shareholder value and earnings expectations.

To federal prosecutors, how do you know where delusion ends and dishonesty begins?

A group of finance and accounting professionals have created an alternative that would prevent U.S. publicly traded companies from deceiving investors and the public, whether it’s through willful deceit or incompetence.

Their online information service, http://www.zethics.com, is designed to alert investment professionals about risk management issues of U.S. publicly traded companies that may have the potential to affect shareholder value, or, have a negative impact on earnings expectations.

Investment professionals gain acceptance and trust in publicly traded companies through extended visibility beyond financial disclosures, and receive early warning of fraudulent or inconsistent behavior.

To avoid being blind-sided by fraud or incompetence, members of the board of directors gain extended visibility into the publicly traded company and its management team.

It wasn’t until Pricewaterhouse told AIG executives that the company “could have a material weakness” that uncertainty about the accuracy of the company’s financial statements were disclosed to investors and the public under SEC rules.

Even with losses from AIG’s Financial Products mounting, the 2007 year-end filing stated, “management believes” it could raise the billions of dollars needed to meet “anticipated cash requirements.”

Yeah, the $180 billion in cash and loans it received from taxpayers just a few months later.

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About zethics
CEO and founder of zEthics, Inc. Thirty years of experience with finance and accounting background in public private sectors.

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