WASHINGTON-A federal grand jury is investigating a contract between major wireless distributor Brightpoint Inc. and American International Group Inc., a probe that comes one year after the two firms reached a $10 million-plus accounting fraud settlement with the SEC.
AIG last week said it was informed by the U.S. Attorney for the Southern District of Indiana that it is a target of a federal grand jury probe involving Brightpoint. The grand jury is focusing on AIG’s sale of a non-traditional insurance product that SEC officials last year said Brightpoint used to conceal nearly $12 million in losses in 1998 and thus overstate that year’s earnings by more than 60 percent. In a Sept. 11, 2003, press release, the SEC said the misrepresentation was subsequently republished in a Brightpoint registration statement filed in September 1999 and in Forms 10-K for 1999 and 2000.
Brightpoint, headquartered in Plainfield, Ind., did not return a call for comment on the grand jury investigation.
Under a 2003 settlement with the U.S. government, in which the two companies neither admitted nor denied SEC allegations, AIG and Brightpoint agreed to pay civil penalties of $10 million and $450,000, respectively. Separately, former Brightpoint chief accounting officer John Delaney agreed to pay a civil penalty of $100,000. Phillip Bounsall, a former chief financial officer at Brightpoint, consented to paying a civil penalty of $45,000.
AIG last week said the U.S. Attorney indicated the federal grand jury investigation involves an “income statement smoothing” product marketed by the insurance company to companies like Brightpoint.
In the same Sept. 11, 2003, press release, the SEC said AIG in 1997 developed and marketed the “income statement smoothing” product, which enables 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, according to the SEC, was to create the appearance of insurance. In this case, the SEC said “insured” Brightpoint was paying premiums in return for an assumption of risk by AIG. In reality, however, the SEC said Brightpoint actually was depositing cash with AIG that AIG returned to Brightpoint.
