AIG Subpoenaed By SEC, Spitzer

By Daniel Hays

NU Online News Service, Feb. 14, 9:28 a.m.EST?American International Group Inc., which has had pastproblems with the Securities and Exchange Commission over"nontraditional" insurance products, revealed today it has beensubpoenaed again over the same issue.[@@]

In addition to being subpoenaed by the SEC, AIG said it also wasserved by the office of New York Attorney General EliotSpitzer.

The requests for material arrived following the company'searnings call last Wednesday, AIG said.

In a two-paragraph announcement the company said the subpoenasrelated "to investigations of nontraditional insurance products andcertain assumed reinsurance transactions and AIG's accounting forsuch transactions. AIG will cooperate in responding to thesubpoenas."

AIG's previous problem concerning nontraditional insurance saleswas concluded Dec. 2, 2004, when the company reached a settlementwith the Justice Department and the SEC. At that time the companysaid it would undergo an examination of its transactions by aninternal committee and an outside monitor to ensure compliance withaccounting rules.

The cost of the settlement with penalties and fees was $126million to settle charges AIG allegedly helped two companiesdistort their financial statements through the use ofnontraditional insurance and transactions arranged by its AIGFinancial Products units.

AIG said then that while it did not admit or deny wrongdoing, ithad reached a settlement to resolve allegations that resulted fromtransactions that AIGFP structured with PNC Bank in Pittsburgh.

Another portion of the settlement ended Justice Departmentcriminal investigations concerning both the PNC transactions andBrightpoint, a Plainfield Inc. phone distributor.

The Brightpoint deal was written by AIG's Loss Mitigation Unitand involved insurance designed to spread a large loss over anumber of years. The SEC said the transaction amounted to adisguised loan.

The PNC dealings involved transactions known as C-GAITS(Contributed Guaranteed Alternative Investment Trust Security).C-GAITS were essentially designed to take $762 million in bad loansand lagging venture capital assets from the bank's balance sheet,transferring them to a special-purpose entity.
Stephen M. Cutler, SEC enforcement division director, said lastDecember that "AIG was reckless" in not knowing that the C-GAITSproduct it developed did not satisfy accounting standards. The SECaction, he said, is "a message to insurance companies and othersthat sell structured finance or other products to public companiesthat are designed for no purpose other than to improve thosecompanies' accounting results."

"In appropriate circumstances, marketers of such products willbe held liable for the resulting misstatements in their customers'financial disclosures," he warned.