WASHINGTON BUREAU — Maurice Greenberg, former chairman of American International Group Inc., has agreed to pay $15 million to settle U.S. Securities and Exchange Commission charges that he made AIG’s finances look artificially strong.

The SEC has accused Greenberg of misstating earnings while he headed AIG, New York.

Greenberg, who built AIG into the world’s largest insurance company before he stepped down in 2005, agreed to pay $7.5 million in penalties and $7.5 million in disgorgement, SEC officials say.

Howard Smith, who was chief financial officer of AIG from 2000 to 2005, has agreed to pay penalties and disgorgement fees totaling $1.5 million to settle SEC charges relating to the same alleged accounting irregularities, officials say.

Smith’s settlement prohibits him from acting as an officer or director of any public company for 3 years. Smith also consented to the entry of an SEC order that will suspend him for 5 years from appearing or practicing before the SEC as an accountant, the SEC says.

Greenberg and Smith have neither admitted nor denied the SEC allegations.

The charges and settlement were filed in the U.S. District Court for the Southern District of New York.

The SEC has alleged that Greenberg. Smith were responsible for “material misstatements” that enabled AIG to create the false impression that the company was consistently meeting earnings and growth targets.

Greenberg “publicly described AIG as the leader in the insurance and financial services industry with a history of delivering consistent double-digit growth,” the SEC alleges in its complaint.

“However, AIG faced numerous financial challenges under Greenberg’s leadership that were disguised through improper accounting,” the SEC alleges.

The SEC says Greenberg and Smith are liable as control persons for AIG’s violations of antifraud law provisions and other securities law provisions.

Smith also was charged with direct violations of the antifraud law provisions and other securities law provisions.

The SEC says the accounting irregularities included:

- Sham reinsurance transactions that made it appear as if AIG had legitimately increased its general loss reserves.

- A purported deal with an offshore shell entity that concealed multimillion dollar auto-warranty insurance underwriting losses.

- Economically senseless round-trip transactions that led to improper reports of gains in investment income.

- The purported sale of tax-exempt municipal bonds owned by AIG’s subsidiaries to trusts that AIG controlled in an effort to improperly recognize realized capital gains.

The allegations the SEC cited were based on the results of an investigation initiated by former New York Attorney General Elliot Spitzer. The results of that investigation led Greenberg and Smith to step down from their posts at AIG in 2005.

Current New York Attorney General Andrew Cuomo is still pursuing a civil case against Greenberg.

Greenberg says he is “pleased” with the settlement because the SEC has decided not to charge him with fraud despite a 4.5-year investigation “involving the review of millions of pages of documents and numerous depositions.”

Greenberg says the only charges made by the SEC against him were in connection with his role as a “control person” under a provision of the Securities and Exchange Act.

“As the SEC acknowledges, Mr. Greenberg does not admit even this claim, although he acknowledges the obvious fact that he was [chief executive officer] of AIG at the time of the accounting at issue,” according to a statement released by Greenberg’s representatives.

Greenberg has “consistently made clear that he personally never engaged in any fraud whatsoever, and that the vast majority of AIG’s restatement was unnecessary and concerned accounting issues for which he had no responsibility,” according to the statement.

But AIG believes the current settlement agreement “is an appropriate basis to resolve the SEC’s investigations and put these issues behind him,” according to the statement. “With these issues behind him, Mr. Greenberg looks forward to being able to concentrate on building for the future.”

Smith issued a separate statement through his lawyer, Vincent Sama.

“Some of the transactions in the Complaint filed by the SEC today are almost 10 years old,” according to Smith’s representatives. “Although Mr. Smith was originally inclined to litigate this matter, resolving the SEC matter allows him to move forward with his life without the added legal costs and distraction of this lawsuit.”