AIG confirms SEC investigation

The US Securities and Exchange Commission and the Justice Department are probing the valuation of financial instruments by American International Group in the company's credit default swap portfolio, the company said.

The news comes several months after the company's 11 February announcement that it increased its estimated losses in the portfolio to $4.88bn from $1.6bn for October and November of last year.

AIG said at the time it was roughly tripling its mark-to-market unrealized losses on the credit default swap portfolio, involving collateralised debt obligations, or CDOs, within the AIG financial products unit.

"AIG has received inquiries from the SEC and Department of Justice regarding the valuation of the AIG Financial Products' CDS portfolio," AIG spokesman Chris Winans said. "While I can't say where this inquiry will lead, I can say it is not unusual to receive such questions, not with the kinds of volatility we've seen, not only at AIG but in the rest of the credit market."

Winans said the inquiries were received some time after AIG filed a notice with the SEC on 8 February that its auditors reported a "material weakness" in how the company estimated the value of its credit default swap portfolio.

The company said in February that PricewaterhouseCoopers, its independent auditors, concluded that at the end of 2007 "AIG had a material weakness in its internal control over financial reporting and oversight relating to the fair value valuation" of the credit default swap portfolio .

Winans would not say what specifically was in the letters, or what, if any, information or documentation AIG was asked to provide.

"We generally don't comment on specific matters of this nature," he said. "But we always cooperate with all our regulators whenever we are asked to do so."

Efforts to reach SEC and DOJ officials were not immediately successful.

The company announced the retirement of Joseph Cassano, the chief executive of AIG Financial Products Corp., in February, after posting $11bn in pretax charges involving valuation of the CDS portfolio.

Mr Winans said AIG believes it has been forthright with investors and regulators concerning the portfolio. "I would stress that we have consistently and promptly provided our best estimates of our credit default swap portfolio valuation estimations and potential exposures," he said. "The thing we have to do now is correct and improve the processes, improve the cooperation between AIG Financial Products and the corporation, and that's just what we're doing."