The U.S. Securities and Exchange Commission has warned American International Group Inc. and a subsidiary that it may sue the firms in connection with alleged accounting problems.[@@]
AIG, New York, says AIG itself and the company’s AIG Financial Products Corp. unit received a “Wells notice” from the SEC staff advising them that officials are considering recommending an SEC civil action arising from a 2002 investigation of PNC Financial Services Group Inc., Pittsburgh.
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 says 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 says.
A month before PNC reached its settlement with the SEC, AIG Chairman Maurice Greenberg told analysts during a conference call that rumors that the insurance and financial services giant 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 says 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 says, 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.”