The Securities and Exchange Commission warned American International Group Inc. that it is mulling a civil action against the insurance company for possible securities laws violations related to three press releases that the commission says are misleading.
The releases relate to the company's disclosure of an SEC investigation into transactions marketed to PNC Financial Services Group Inc. The investigation centers on AIG's structuring of three special-purpose financial vehicles for PNC in 2001, the Insurance Journal reported. The transactions were the subject of a 2002 SEC action against the company.
PNC transferred $762 million worth of doubtful loans and investments off its books and on to AIG's through the use of the derivative vehicles -- a move that the SEC charged violated generally accepted accounting principles and enabled PNC to overstate its 2001 earnings, according to the report.
In a Jan. 30, 2002, press release, AIG said that it "has not entered into any other transactions using this structure." The SEC told the company that the statement was misleading because AIG Financial Products Corp. had entered into five other transactions (referred to as GAITS transactions) with two other counterparties, AIG said this week. The insurer noted that the press release hadn't previously been indicated as being of concern to the SEC.
At issue, AIG said, is whether and how the GAITS transactions differed from the PNC transactions. Unlike the PNC transactions, AIG said that none of the five additional transactions "had the primary purpose of moving troubled, volatile or underperforming assets off the balance sheet of the counterparty."
The SEC said that it views a Sept. 21 press release as a "continuation of the problem with the January 2002 release" and that it views the release as false and misleading because it provided a false impression by identifying only the PNC transactions. The SEC staff said that the GAITS counterparties (two insurance groups) should have been named.
The commission said that AIG's Sept. 29 press release about the Department of Justice investigation "continued the allegedly misleading disclosure that had begun in 2002" because it didn't present a fair picture of the scope of the DOJ probe. The Justice Department also told the insurer that, in its view, that press release may be misleading.
In a statement issued Monday, AIG said that it believes that "any contention that the three press releases are or may be false or misleading is without merit and that any action by the SEC would be unwarranted."
However, the company said that it "understands that the staff's view is that" the GAITS transactions "failed to qualify for nonconsolidation by the counterparty because the fees paid to AIGFP as part of the transactions should have been netted against AIGFP's equity contribution to the special-purpose entities utilized in the transactions."
