The probes, by the Securities and Exchange Commission and the U.S. Justice Department, center on whether the insurer and its financial-products division intentionally overstated the value of contracts linked to subprime mortgages.
The company has about $60 billion of those contracts, known as credit-default swaps, which insure buyers against the risk of losses from certain securities, including those backed at least in part by risky subprime mortgages. They have accounted for about $20 billion in write-downs, or unrealized paper losses, disclosed by AIG this year.
Authorities are looking at the company's financial-products division, which specializes in complex financial instruments such as credit-default swaps and which prosecutors have previously put on a tight leash after finding accounting issues tied to some of its products. AIG four years ago settled a securities-fraud case that concerned that division's effort to help PNC Financial Services Group Inc. improve its reported financial results.
The division, which admitted to engaging in transactions that violated accounting rules, entered into a deferred-prosecution agreement with the Justice Department, which in effect means it had to be on its best behavior to avoid charges. That agreement expired without charges being filed, though AIG later entered into another one, over another accounting issue concerning the parent company, set to expire next year.
The probes come at a time when AIG is under pressure from shareholders frustrated by its recent financial performance. Shares closed up Thursday, though they remain near an 11-year low.
In a statement, AIG said, "As is the case throughout AIG, our colleagues [in the financial-products division] have been rigorously focused on transparency and accuracy in all its disclosures. The goal is clear: make sure the numbers are right, whether it's good news or bad news." A spokeswoman for the Justice Department and spokesman for the SEC declined to comment.