Updated from 9:39 a.m. EDT

Almost $4 billion of earnings vanished Tuesday when

American International Group

(AIG) - Get Report

made good on its pledge to restate five years of financial results in a filing with the

Securities and Exchange Commission.

The restatements appeared in the insurer's 2004 annual report, a 400-page document whose completion was delayed three times as the company sought to rectify an accounting scandal that led to the ouster of Maurice Greenberg, the longtime chief executive.

As expected, the filing showed a 2.7% reduction in AIG's shareholder equity since the company first estimated its 2004 results in a Feb. 9 press release. AIG was forced to reclassify phony reinsurance transactions as loans and consolidate several off-shore reinsurers onto its books.

Last week, New York Attorney General Eliot Spitzer filed civil fraud charges against AIG and Greenberg, charging the former insurance industry titan with orchestrating a series of accounting tricks and frauds to help prop up AIG's stock price.

In bringing its corporate books in line with standard accounting principles, AIG lowered its tally of 2004 profits, saying it earned $9.73 billion in the 12 months to Dec. 31, 2004, not the $11.05 billion it reported in a Feb. 9 press release. In all, the restatement erased about $3.91 billion in earnings, reducing total profits from 2000 through 2004 to $33.91 billion.

The restatement also led to a large reduction in the value of reinsurance assets on AIG's balance sheet in each of the last five years. On average, the insurer reduced the total value of its reinsurance assets by 23% in each year of the restatement.

Greenberg, who resigned from the company in February, and Howard Smith, who was fired as CFO, are alleged in Spitzer's complaint to have played leading roles in the accounting shenanigans, which came to light during a broad investigation of insurance industry practices last year.

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AIG's stock was recently down 56 cents, or 1%, to $55.84. Last week, AIG shares rose 5% after Spitzer filed his civil charges. Traders apparently were heartened that Spitzer's complaint contained no new allegations.

"We are still worried that the last shoe hasn't dropped ... but it's a tempting stock for us,'' said Timothy Ghriskey, a money manager with chief investment officer of Solaris Asset Management, a Bedford Hills, N.Y., investment fund that's been sitting on the sidelines when it comes to AIG.

Ghriskey says his initial reaction is that the reduction in profits was tame.

"It's less then a lot of analysts had forecasted,'' says Ghriskey. "Whether this is the last write off you can't say, but I think it's likely they probably tried to uncover every potential issue and put it behind them.''

CreditSights analyst Rob Haines says because the restatement did not include any huge surprises it should alleviate concern that that the big credit ratings agencies will again downgrade AIG's corporate bonds. In a research note, Haines speculates that Moody's Investor Services and Standard & Poor's will "remove AIG's ratings from negative review.''

In March, both S&P and Moody's stripped AIG of its vaunted triple-A rating for its long-term debt. The ratings agencies downgraded AIG's debt by one notch and indicated further downgrades were possible.

The downgrades were more symbolic than anything else since AIG's credit rating is remains well above most other financial services firms. But the downgrades are an indication of just how much the accounting scandal has tarred AIG's once pristine image on Wall Street.

In the restatement, AIG took a $2.7 billion charge in the fourth quarter of 2004 to fix its accounting woes. In an unrelated move, it took an $850 million charge to bolster its reserve for asbestos litigation.

AIG is downwardly restating various accounts primarily to correct its accounting for a web of reinsurance transactions that regulators determined were designed mainly to polish its financial results.

The main impact of the revisions is a reduction of year-end shareholders' equity to $80.61 billion, down $2.26 billion, or 2.7%, from the amount reported on Feb. 9. Shareholder equity measures a company's net worth and is, roughly speaking, its assets minus its liabilities.

The reduction in shareholder equity occurred when AIG reclassified the reinsurance transactions as liabilities. Regulators believe -- and AIG has conceded -- that in many cases those transactions didn't encompass enough risk-transfer among separate companies to be considered insurance and should be considered loans.

AIG, which has lost about 20% of its value this year as details of the restatement transpired, also said Monday that it will commission a "comprehensive independent actuarial review of the loss reserves of its principal property-casualty insurance operations." The review could take about a year, it said.

"We are embarking on a new era for AIG that will be marked by changes in the way we operate -- including greater responsiveness and transparency -- while preserving the core values that have enabled us to build an unequaled franchise and effectively meet our customers' needs," CEO Martin Sullivan said in a press release. "I am confident that the changes we are initiating throughout the organization will make AIG an even stronger and better company."