AIG Financial Products Unit Probed by U.K. Prosecutor (Update2)

By Hugh Son and James Lumley
Bloomberg News
February 12, 2009

Feb. 12 (Bloomberg) -- American International Group Inc.'s financial products unit, which brought the firm to the verge of collapse with bad bets on credit-default swaps, is being investigated by U.K. prosecutors for possible criminal conduct.

Investigators are working with authorities in the U.S. who are conducting separate reviews, Britain's Serious Fraud Office in London said today in a statement. AIG said it is cooperating with the probe, which isn't related to insurance operations.

"We will use our full range of powers to seek information and to speak to those with an inside knowledge of the company's operations," said Richard Alderman, director of the SFO, in the statement. "It is right for us to look into the UK operations of AIG Financial Products Corp., to determine if there has been criminal conduct."

AIG is unwinding the financial products business, which sold derivatives including protection on fixed-income investments and caused about $34 billion in writedowns since 2007. The U.S. government rescued AIG last year to reduce losses at banks that did business with the insurer.

It was a "surprise" for the SFO to disclose the probe so early in the investigation, said David Corker, a lawyer at Corker Binning in London who isn't involved in the case. Usually the agency doesn't make announcements until after conducting searches, he said.

Joseph Norton, a spokesman for New York-based AIG, had no immediate comment.

U.S.-U.K. Cooperation

SFO spokesman Sam Jaffa said that U.K. investigators have been discussing starting an investigation with the U.S. "for some time." In the next two to three weeks they plan to meet with U.S. investigators and executives at the company, he said.

The SFO investigates and prosecutes the most complex and high value financial crime in the U.K. Britain's market regulator, the Financial Services Authority, is also participating in the AIG probe.

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