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SEC reportedly probing AIG's swaps
[full article]

American International Group Inc. is being investigated by federal regulators about whether the beleaguered insurance giant overstated the value of credit default swaps linked to subprime mortgages, The Wall Street Journal reported Friday.
The paper cited unnamed people familiar with the matter.
The Justice Department in Washington and the U.S. Attorney's office in Brooklyn have requested that the Securities and Exchange Commission turn over any information gleaned from the investigation into AIG signaling that a criminal inquiry could follow, the newspaper said.
Credit default swaps, which insure against the default of securities, were sold to investors on a large scale via complex investment products know as collateralized-debt obligations, or CDOs.
Credit default swaps allowed investors to protect the underlying debt packaged in these CDOs in the event of default on the underlying debt.
The SEC and federal regulators are now interested in how those CDOs were valued, which would affect both the value of the swaps themselves and how much collateral AIG could be on the hook for if the buyer of the swap collected in order to offset their risk, the Journal said.
The newspaper estimated that AIG had increased its collateral related to such swaps to $9.7 billion as of April 30, a jump from $5.3 billion only two months earlier.
AIG has been beset by a rash of legal and regulatory troubles lately, with several former executives convicted in federal court of illegally inflating the company's stock price. Former CEO Maurice "Hank" Greenberg is also the target of a separate, civil investigation by the SEC into whether he had colluded with that conspiracy.
The company also paid out $1.6 billion in 2006 to settle allegations of accounting improprieties and other regulatory missteps.
[full article]

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