In one of the largest regulatory settlements ever, American International Group Inc. will pay more than $1.6 billion to settle allegations that it used deceptive accounting practices to mislead investors and regulators.

The settlement, announced by the New York Attorney General's Office, requires the insurer to adopt changes in its business practices to ensure proper accounting procedures in the future.

The agreement will settle the civil suit filed in May 2005 by Attorney General Eliot Spitzer and the New York State Insurance Department. The Securities and Exchange Commission, which assisted in the investigation, will simultaneously file and settle allegations of accounting fraud with the company.

The settlement does not cover Maurice "Hank" Greenberg, the company's former chairman and chief executive, who was named in the suit but has pledged to fight it in court. The company still faces shareholder lawsuits, and in a separate probe, last month a former AIG executive was indicted in the SEC's investigation into the company's reinsurance practices.

Under the agreement, about $800 million will go to investors who were deceived by AIG's accounting tactics and about $375 million will go to AIG policyholders. Another $344 million will go to states harmed by AIG's practices from 1986 to 1995 involving state workers' compensation funds.

In comparison, settlements in other New York-based accounting scandals cost WorldCom Inc. civil fines and restitution of $750 million, Adelphia Communications Corp. $715 million, and Time Warner Inc. $300 million.

AIG has already accounted for many of the problems addressed in the settlement. In May 2005, the company restated five years of earnings, reducing its net income by $4 billion, or 10 percent.

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