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American International Group, Inc. is in the news, posting huge market gains and rightfully positioned at the center of multiple controversies. On Monday, investors welcomed new CEO Robert Benmosche as AIG continued its powerful rally closing +1.56 or +5.76%. In the past week, the stock has doubled in value and scored some rather ominous headlines along the way.

U.S. taxpayers own an 80% share of AIG. With $180 billion of taxpayer money, AIG is under the gun to divest itself of losing entities and overcome the public’s perception of mismanagement, scandal and stupendous bonus rewards for poor performance.

Interim CEO, Ed Liddy, whose annual salary was $1.00 for his 11 months of service turned over the reins but the AIG controversy appears to be heating up again.

On August 6^th, former AIG CEO, Hank Greenberg, agreed to pay $15 million to settle allegations about bookkeeping misrepresentations at the world’s largest insurer. Greenberg chaired AIG for 38 years and may still face civil charges. Greenberg also agreed to pay $1.5 million to the SEC for other fraudulent misrepresentations.

On August 7^th, AIG announced its first profitable quarter in almost two years.

On August 9^th, questions were raised as to the relationship between former U.S. Treasury Secretary Henry Paulson, his former employer Goldman Sachs, and the AIG bailout.

On August 11^th, Taiwan’s Cathay Financial seemed released an announcement with tie to the company’s plan to acquire AIG’s Taiwan Insurance unit.

Meanwhile, the ongoing dilemma at AIG is rooted in the Financial Products unit’s staggering $99 billion loss in 2008.

Standard & Poor’s Catherine Seifert offered the following analysis; “Results were better than we expected and reflected positive mark-to-market gains, not strength in underlying operations. We believe that the turnaround in Q2 book value may not be sustainable and that the risk/reward for common equity holders is not attractive.”

Liddy Issues Warning

On his last day at AIG, Ed Liddy hoisted cautionary flags indicating that accounting revisions could lead to severe swings. The strategy is to wind down unprofitable units, sell other units and do whatever is necessary to raise $80 billion to retire the first installment in a series of taxpayer loans.

AIG’s second quarter profit was $1.8 billion, which represented a significant year-over-year improvement. Second quarter 2008 losses were $5.4 billion. Adjusted profit was $2.57 per share, well above analyst projections of $1.33 per share.

With the August 7^th release, AIG shares jumped 20% to $27.14. In the four days preceding the release, shares jumped 70% as the improved results pressured short sellers to become buyers to cover their positions.

AIG has yet to deal with $1.1 billion in 2009 retention bonuses. When bonuses were issued in March, Liddy came under heavy fire from Congressional leaders and taxpayer groups.

In 2009, small asset sales of AIG entities have resulted in $2.6 billion returned to the Federal Reserve. A government directed sale of AIG’s largest life insurance units should net another $25 billion for taxpayers.

AIG’s general insurance operations have suffered a 19% decline in new premium issues as premiums to the company’s life insurance retirement account dropped 15% to $8.1 billion.

Paulson & Goldman Sachs

Goldman Sachs was one of the biggest benefactors of the AIG bailout. Not only did Goldman Sachs receive $10 billion in taxpayer funding, but the company captured $13 billion in AIG counter-party payments as a result of the AIG bailout. Meanwhile Former Treasury Secretary Hank Paulson spoke with Goldman’s CEO, Lloyd Blankfein, on more than two dozen occasions during the tense period following the collapse of Lehman Brothers.

To facilitate the conversations, Paulson requested a waiver from White House attorneys. The waiver enabling Paulson to speak with his former employer was executed on September 17^th. Records indicate that Paulson had an inordinate number of conversations with Goldman Sachs.

Paulson and his Goldman Sachs successor spoke three times prior to the waiver and five times on the day the waiver was finalized. These conversations have led lawmakers to suggest a conflict of interest existed between Paulson and Goldman Sachs.

Taiwan Companies Vie for AIG Division

With Cathay Financial’s announced intention to raise $600 million, Taiwan’s largest financial holding company seems ready to enter the bidding war for AIG’s Taiwan division. Previously, Cathay’s biggest competitor, Fubon, announced plans to raise $900 million for the acquisition.

The sale of Nan Shan Life should reap $2 billion for ailing AIG. Every AIG payment is welcomed by U.S. taxpayers, who have a dim view of the company and former CEO Hank Greenberg’s business practices.

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