NEW YORK – American International Group Inc. (AIG), the world's largest insurer by market value, on Tuesday said it reached preliminary accords to settle federal criminal and regulatory probes into whether it helped two companies fraudulently inflate earnings.
The agreements with the Department of Justice and Securities and Exchange Commission (search) relate to products sold to PNC Financial Services Group Inc. (PNC), Pennsylvania's largest bank, and Brightpoint Inc. (CELL), a cell phone distributor, New York-based AIG said.
AIG said it agreed in principle to settle the Justice probe, and that SEC staff agreed to recommend an AIG settlement offer to SEC commissioners. The insurer did not specify the terms of the agreements, which need final approval and also cover its AIG Financial Products Corp. unit.
AIG shares were up 1.6 percent in afternoon trading.
"It is a step in the right direction, but we still have issues ahead," said Michael Chren, who runs the $650 million Armada Large Cap Value fund, which owns AIG shares.
AIG spokesman Joe Norton declined to comment. SEC spokesman John Nester and Justice Department spokesman Bryan Sierra also declined to comment.
AIG Chief Executive Maurice "Hank" Greenberg hopes to resolve the federal investigations to focus on New York Attorney General Eliot Spitzer's (search) probe into insurance brokers' alleged collusion with insurers to fix prices.
Spitzer on Oct. 14 publicly launched his examination of insurance practices when he accused broker Marsh & McLennan Cos. (MMC) in a lawsuit of bid-rigging. Greenberg's son Jeffrey was ousted 11 days later as Marsh's chief executive.
The PNC probe concerns whether AIG helped the Pittsburgh-based bank move $762 million of bad loans off its books, inflating profit by $155 million.
PNC paid $115 million in fines and restitution to settle SEC civil fraud charges in the matter, without admitting or denying wrongdoing.
The Brightpoint probe concerns an AIG policy that regulators said helped Plainfield, Indiana-based Brightpoint fraudulently conceal losses. Brightpoint in November 2001 restated more than three years of results.
AIG agreed in September 2003 to pay $10 million to settle SEC civil fraud charges concerning Brightpoint, without admitting or denying wrongdoing.
An Indiana federal grand jury has separately been examining "nontraditional" and "income smoothing" products from AIG that looked like insurance, but did not actually transfer risk.
Several state regulators, including Spitzer, have issued subpoenas or document requests to several insurers concerning nontraditional products.
Chren, the portfolio manager, said he doesn't expect AIG to pay a sizable fine, "even if it is many times the $10 million they originally settled for on Brightpoint. My sense is they will agree never to perform this kind of transaction again."
He added that AIG's Greenberg "hates this kind of stuff, and seeing his stock fall the way it has probably has been tearing him apart."
AIG shares were up 98 cents at $63.83 in afternoon trading on the New York Stock Exchange, after rising to $64.15. They have fallen from $66.99 the day before Spitzer sued Marsh. Their 52-week high is $77.36, set on April 13.