AIG Faces U.S. Criminal Probe in Bad Loan Masking Case

NEW YORK – The U.S. Justice Department has opened a criminal probe into whether American International Group Inc., the world’s largest insurer by market value, helped a major banking client move bad loans off its books, AIG said on Wednesday.

The insurer said it believes the investigation relates to a U.S. Securities and Exchange Commission probe into whether the company’s AIG Financial Products Corp. unit helped PNC Financial Services Group Inc. cloak $762 million of bad loans, inflating the bank’s profit by $155 million.

New York-based AIG said the probes concern possible federal securities law violations. It said it intends to cooperate with the Justice Department and SEC, but believes that charges are unwarranted. AIG on Sept. 21 said SEC staff were considering whether to recommend civil charges in the matter.

AIG spokesman Joe Norton declined further comment. Justice Department spokesman Bryan Sierra declined to comment.

The case involves the creation for Pittsburgh-based PNC of so-called special-purpose entities, a type of partnership that Enron Corp. used to hide debt and which helped lead to the energy trader’s collapse and bankruptcy.

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