NU Online News Service, Jan.13, 2:51 p.m.EST

WASHINGTON–A House government oversight panel orderedthe Federal Reserve Bank of New York to produce documents relatedto its role in American International Group's failure to disclosedetails of the decision to pay AIG trading partners in full.

At the same time as that action yesterday, the ranking member ofa Senate subcommittee that oversees the Securities and ExchangeCommission asked the agency to conduct a full investigation intothe Fed's role in the decision to pay counterparties 100 cents onthe dollar on credit default arrangements that went bad.

"Because the information withheld appears to be materialinformation about the financial condition of AIG and the value ofthe company, these actions may constitute a serious violation ofthe securities laws," Sen. Jim Bunning, R-Ky., said in a letter toSEC Chairman Mary Schapiro.

Sen. Bunning is the ranking minority member of the SenateBanking Committee's Securities, Insurance and InvestmentSubcommittee.

Later in the day, Rep. Edolphus Towns, D-N.Y., chairman of theHouse Committee on Oversight and Government Reform, disclosed thathis panel had issued a subpoena for documents related to the Fedbank's role in AIG's failure to disclose the names of the bankswhose credit default arrangements were paid off in late 2008.

"To help the committee's investigation of payments made by AIGto its counterparties, I am issuing a subpoena today to the FederalReserve Bank of New York," Rep. Towns said.

"This subpoena will provide the committee with documents thatwill shed light on how and why taxpayer dollars were used for abackdoor bailout," he said. AIG has received billions in TroubledAsset Relief Program assistance in exchange for giving thegovernment a 79.9 percent interest in the firm.

Maurice Greenberg, former AIG chairman and CEO, said he believesthat AIG's debt to the government should be reduced by $62 billionto cover the value of the CDS paid off by AIG because themortgage-backed securities AIG had paid off had a market value farless than the face value of the securities.

The documents sought by subpoena relate to the Fed's role inpreparing the security filing issued by AIG related to its payoffof the CDS.

According to testimony last March by then AIG CEO Edward Liddy,at the time the Fed loaned AIG up to $182 billion to cover margincalls on the CDS, AIG had $2.77 trillion outstanding in unhedgedinsurance on CDS arrangements.

The documents sought by subpoena related to complex derivativeinstruments called collateralized mortgage obligations insured byAIG that were sold to a Fed facility called Maiden Lane III by 16banks. So far, AIG has only reported through SEC filings the namesof the 16 banks and the total dollars each bank received for thosemortgage-related securities.

The banks included Societe Generale, Goldman Sachs, Barclays,Paribas, Deutsche Bank and Merrill Lynch.

The Fed e-mails on the issue were released to the press by Rep.Darrell Issa, R-Calif., ranking minority member of the Oversightpanel.

They were provided by Robert Benmosche, current CEO of AIG.

The filing with the Securities and Exchange Commission did notinclude a Schedule A, which would provide the amounts and the namesof the institutions which AIG paid off.

That information was not disclosed until May 2009, after membersof the Senate Banking and House FSC demanded the information. And,in the material provided Rep. Issa by AIG, the SEC also privatelyasked AIG why the full data was not disclosed.

Members of Congress, including Sen. Chris Dodd, D-Conn.,chairman of the Senate Banking Committee, and Sen. Richard Shelby,R-Ala., ranking minority member of the committee, voiced anger atthe failure to disclose the payoffs at a March 2009 hearing on theissue.

Sen. Bunning in his letter Monday asking for an investigation bythe SEC said, "The decision by the Fed Bank of New York toeffectively pay full value for the securities underlying thederivatives contracts when the market price was substantially lesshas been a source of significant controversy."

"While the decision to pay par value may not have been aviolation of the securities laws, the controversial nature of thedecision provided a strong motive for the apparent cover-up," hesaid.

Republicans, including Rep. Issa, Rep. Roy Blunt, R-Miss., andRep. Spencer Bachus, R-Ala., ranking minority member of the HouseFinancial Services Committee, have voiced strong anger in recentdays over the Fed's role.

They have criticized Treasury Secretary Timothy Geithner, whowas head of the New York Fed at the time when the Fed and the Bushadministration made the decision to provide more than $180 billionto AIG in return for 79.9 percent of its stock.

A Treasury spokesperson said Mr. Geithner was not involved inthe decisions being questioned by House Republicans.