AIG: We Know Of No Crime At AIGFP

National Underwriter News
April 28, 2009

American International Group said today that despite the ongoing investigations by federal authorities, they know of no illegal activity by the company's controversial financial products unit.

"To date, neither AIG nor AIGFP is aware of any fraud or malfeasance in connection with the underwriting and creation of the multisector CDS [credit default swaps] portfolio, as opposed to what, with hindsight, turned out to be bad business decisions," said an e-mail from company spokesman Mark Herr.

He added: "AIG and AIGFP are, however, aware of ongoing investigations by the Department of Justice and the SEC [Securities and Exchange Commission] with respect to the subsequent valuation of the multisector CDS portfolio under fair value accounting rules and related disclosures.

"We have cooperated fully with these investigations and will continue to do so."

AIGFP in London was headed by Joseph Cassano, who left the company last year. The unit's massive losses forced the company to seek billions in government bailout money. Mr. Cassano and two current AIGFP employees, Andrew Forster and Tom Athan, were reported by The Wall Street Journal to be under scrutiny in the federal probe.

In addition to the controversy over the losses that AIGFP caused, news that $160 million in bonuses were paid to key executives there caused a storm of criticism. The Journal said Mr. Forster and Mr. Athan were among AIG employees who had agreed to return their bonuses.

Special Inspector General Neil Barofsky with the Troubled Asset Relief Program recently informed the Senate Finance Committee that probes are underway into the bonus payments and his office is coordinating with the Department of Justice on the options available to recover the bonuses paid AIG executives.

He also said his agency has an audit underway that seeks to determine the federal monitoring and enforcement of executive compensation restrictions imposed as a condition of federal financial assistance to organizations such as AIG.

Earlier this week, New York Insurance Superintendent Eric Dinallo, in a piece discussing insurance regulation in The Financial Times concerning AIGFP, wrote, "Almost nonexistent regulatory capital requirements permitted that unit to take the risky bets that brought down AIG and resulted in its bailout -- all the while regulated by the OTS [Federal Office of Thrift Supervision], whose expertise--savings and loans--represented just one one-thousandth of its balance sheet."

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