American International Group (AIG) - Get American International Group, Inc. Report will pay an $80 million fine and $46 million in restitution to settle an investigation into two financing transactions arranged by a subsidiary.
The world's biggest insurer announced the agreement in principle a day after it said it had reached a tentative deal with the
Securities and Exchange Commission
and the Department of Justice. The company didn't disclose any details of the proposed settlement on Tuesday.
SEC commissioners met in a closed-door session Tuesday to consider the AIG deal. The SEC and the Justice Department have yet to comment on the agreement.
"This proposed settlement will be comprehensive and bring finality to the claims raised by the SEC and the DOJ," said AIG Chairman and Chief Executive Maurice Greenberg. "It is in the best interests of our shareholders, customers and employees to reach this settlement."
The settlement covers an investigation into structured finance deals AIG Financial Products crafted for
, a cell-phone company. Regulators and prosecutors were looking into AIG's role in financial engineering transactions used by PNC and Brightpoint to either smooth earnings or enhance a corporate balance sheet.
The deal also calls for the appointment of an independent consultant to review other earning smoothing transactions entered into by AIG from 2000 to 2004. The insurer also will establish a committee to review any new transactions.
The SEC and Justice Department had previously reached a settlement with PNC, which resulted in the Pittsburgh-based bank paying $120 million. The investigation centered around three AIG-sponsored deals that enabled PNC to transfer more than $700 million in bad loans to an off-balance-sheet venture, a move that allowed the bank to report higher earnings.
Last year, AIG paid a $10 million to the SEC over its sale of an "income smoothing" insurance product to Brightpoint, which permitted the Indiana-based company to conceal $11.9 million of losses in 1998. In recent weeks, federal prosecutors had asked a grand jury to begin looking into the matter.
The tentative agreements with the SEC and federal prosecutors, however, may not be the end of AIG's troubles when it comes to helping companies engage in financial engineering. New York Attorney General Eliot Spitzer and the SEC have begun a broad-based inquiry into such deals, serving subpoenas on more than a dozen insurers that have sold similar insurance products, commonly referred to as finite insurance policies.