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AIG Reportedly Nearing Record Fine

It would pay about $1.5 billion to settle accounting allegations.
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American International Group

(AIG) - Get American International Group Inc. Report

is likely to pay a record-setting $1.5 billion fine to settle a lengthy regulatory investigation into the giant insurer's accounting practices, published reports say.

A settlement between AIG and regulators could be announced as early as this week, according to

The Wall Street Journal


The New York Times.

The deal with New York Attorney General Eliot Spitzer and the

Securities and Exchange Commission

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will eliminate a cloud that has hovered above AIG for more than a year. The settlement, however, will have no impact on the pending civil fraud lawsuit Spitzer has filed against Maurice Greenberg, AIG's former CEO and chairman.

Last year, Greenberg was forced to resign from AIG over allegations that the big insurer had employed a series of accounting gimmicks for many years to burnish its financial statements. Greenberg has vowed to fight the fraud charges and contends AIG has knuckled under to regulators.

The settlement with AIG comes just days after federal prosecutors indicted a former top AIG executive on charges he took part in a scheme to manipulate the insurer's earnings.

Last week, federal prosecutors in Virginia said a grand jury indicted Christian Milton, AIG's former vice president for reinsurance, and three former General Re executives on a variety of securities fraud charges. Gen Re is a division of

Berkshire Hathaway


, the publicly traded investment vehicle of Warren Buffett, who hasn't been charged with any wrongdoing in the probe.

Federal prosecutors contend Gen Re participated in a scheme to prop up AIG's stock price by masking declines in its claims reserves and massaging quarterly earnings. Authorities contend the primary purpose of the transaction was to add $500 million in "phony loss reserves" to AIG's balance sheet to quell Wall Street criticism.

Authorities have alleged the Gen Re transaction began with a phone call from former AIG Chairman and CEO Greenberg to Ronald Ferguson, who was then Gen Re's president. The SEC complaint contends it was understood by Ferguson that AIG wouldn't assume any actual risk in the deal. Ferguson is one of the Gen Re executives indicted last week.

The alleged scheme involving Gen Re is just one of the accounting practices regulators have looked at.