Question

A financial scandal in American International Group, Inc. (AIG). Explain following:

1. How did it affect society?

2. Did something good come out of the situation?

3. Can it be prevented? How?

Answer 1

1. The AIG accounting scandal was about the involvement of company in sham contracts, which gave a disillusion to the investors that AIG is doing well and kept capital running in the firm. The societal impacts of this scandal are:

• Loss of investor shares
• 16 violations of federal law
• Largest quarterly loss in history of America

2. With the AIG scandal coming out in open, the Treasury Department of Government sold the last of the remaining shares of AIG. This sellout made a $23 billion profits for the investors as well as government.

3. The above mechanism could have been avoided if the following existed in the system:

• Stringent punitive measures to be taken against the defendant
• Random accounting audits conducted to check the sanctity of the financial books of business