American International Group Inc., the world's largest insurer by market value, on Tuesday said it reached preliminary accords to settle criminal and regulatory probes into products it sold that might have helped companies inflate earnings.
The agreements, which need final approval, relate to financial transactions conducted for Pittsburgh-based PNC Financial Services Group Inc., Pennsylvania's largest bank, and Plainfield, Indiana-based Brightpoint Inc., a cell phone distributor, as well as other matters, AIG said.
The New York-based insurer said it agreed in principle to settle a U.S. Department of Justice criminal probe.
It also said U.S. Securities and Exchange Commission staff agreed to recommend an AIG settlement offer to the SEC. Both settlements also cover the company's AIG Financial Products Corp. unit.
"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.
The PNC probe involved whether AIG helped PNC 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 charges in the matter, without admitting or denying wrongdoing.
The Brightpoint probe concerns AIG's designing of a policy to help fraudulently conceal and move losses. AIG agreed in September 2003 to pay $10 million to settle related SEC charges, also without admitting or denying wrongdoing.
AIG did not discuss the terms of either settlement in a press statement. Company spokesman Joe Norton declined to comment. SEC spokesman John Nester and Justice Department spokesman Bryan Sierra also declined to comment.
AIG shares rose 73 cents to $63.58 in morning trading on the New York Stock Exchange.
The proposed settlements come as New York Attorney General Eliot Spitzer examines "nontraditional" insurance products as part of his probes into insurance industry practices.
He publicly launched the probes on Oct. 14 when he accused insurance broker Marsh & McLennan Cos. in a lawsuit of bid-rigging.
Separately, an Indiana federal grand jury has been examining "nontraditional" and "income smoothing" products that AIG marketed that looked like insurance, but did not actually transfer risk.
"I don't expect a significant fine, even if it is many times the $10 million they originally settled for on Brightpoint," Chren said, referring to the proposed settlements. "My sense is they will agree never to perform this kind of transaction again."