SEC May Sue AIG For PNC Transactions

SEC May Sue AIG For PNC Transactions

By Daniel Hays

NU Online News Service, Sept. 21, 3:52 p.m. EDT?The Securities and Exchange Commission has put American International Group Inc. and its financial subsidiary on notice that it may sue the firms for violation of securities laws related to alleged accounting transgressions.

AIG in New York said the AIG Group and AIG Financial Products Corp. received a communication from the SEC staff known as a "Wells Notice" advising that they are considering recommending an SEC civil action arising from a 2002 investigation of Pittsburgh-based PNC Financial Services Group.

That PNC investigation found that AIG helped PNC take $762 million in volatile, troubled or underperforming loans and venture capital investments off its financial statements by moving them to special entities it created in what are known as PAGIC transactions.

The SEC said PNC used improper accounting for the transactions, which inflated PNC 2001 earnings by $155 million. The company, on the advice of the Federal Reserve board, later restated its income downward by that amount. PNC also agreed to settle an SEC action against it by agreeing to a cease and desist order.

"AIG and AIGFP believe that the proposed action would be unwarranted and will respond" to the SEC, the company said.

A month before PNC reached its settlement with the SEC, AIG Chairman Maurice Greenberg told analysts during a conference call that rumors AIG was under investigation by the SEC were unfounded.

He confirmed then that AIG had communicated with the SEC regarding the PNC transactions, stating: "There's no serious issue involving AIG with the SEC. At least there wasn't when I came in this morning."

AIG noted today that under the SEC procedures it can respond to the SEC staff before it makes a formal recommendation regarding what action, if any, should be brought against the company.

A spokesman for the SEC said if the agency pursues a civil action against a company, it can include seeking fines, bars against activity by officers or directors, cease and desist orders and injunctions. The relief sought, he said, will depend on the seriousness of the offense involved and amount of investor harm.

AIG Financial Products is a principal in customized, interest rate, currency, equity and credit transactions.

The firm states on its Web site that it uses "derivative products as tools to help solve clients' financial, tax, accounting and regulatory concerns. AIG-FP is best known for its cutting edge solutions to client problems and for being the leader in the long-term derivatives markets."

AIG, an international insurance and financial services giant, has operations in more than 130 countries and jurisdictions, and serves customers with worldwide property-casualty and life insurance networks.

AIG's global businesses also include retirement services, financial services and asset management. AIG's financial services businesses include aircraft leasing, financial products, trading and market making.

AIG's growing global consumer finance business is led in the United States by American General Finance. AIG also has one of the largest U.S. retirement services businesses through AIG SunAmerica and AIG VALIC, and provides asset management for the individual and institutional markets, with specialized investment management capabilities in equities, fixed income, alternative investments and real estate