AIG May Face Regulator Lawsuit in Bad-Loan Case

U.S. regulators are weighing whether to sue American International Group Inc. on grounds of helping PNC Financial Services Group cloak bad loans on PNC’s books.

AIG, the No. 1 insurer by market value, said Tuesday that it was informed by the Securities and Exchange Commission that SEC staffers were considering recommending that the agency bring civil action against AIG and one of its units alleging violations of federal securities laws.

AIG said any action by the SEC would be unwarranted.

The company said it would respond to the notice from the SEC staff, who will then decide whether to make a formal recommendation to the agency’s commissioners.

Regulators say AIG’s unit AIG Financial Products Corp. may have violated federal securities laws by helping create special business entities with PNC Financial Services for the loans before 2003, including three transactions between June 2001 and November 2001.

The Pittsburgh-based bank ultimately agreed to a formal settlement with the SEC, the Federal Reserve and the Office of the Comptroller of the Currency, which believed PNC’s 2001 transfer of $762 million in troubled assets off its balance sheet improperly inflated its profit by $155 million.

Federal regulators accused PNC, with the approval of its auditors, of illegally transferring the troubled loans and venture capital investments to three companies it formed with AIG.

Shares of AIG closed down 30 cents at $70.94 on the New York Stock Exchange.