AIG to Settle Securities Probe for $126 Million

American International Group Inc. said Wednesday that it had agreed to pay $126 million to settle federal allegations that the insurance giant helped two customer companies commit accounting fraud.

Under an agreement awaiting Securities and Exchange Commission approval, AIG will pay a $46-million fine to the watchdog agency to settle issues surrounding transactions that helped regional bank PNC Financial Services Group Inc. pump up its earnings.

AIG also will submit to an independent monitor who will examine certain transactions by the company from 2000 to 2004 to determine whether any related parties violated accounting rules to achieve certain results.

New York-based AIG, one of the nation’s largest insurers, also will pay $80 million to the Justice Department to settle a related investigation and avoid prosecution.

The tentative deal to wrap up those investigations came as the Wall Street Journal reported that federal prosecutors in New York were investigating whether AIG Chairman Maurice “Hank” Greenberg manipulated the company’s share price in 2001 to save money on a big acquisition.

The U.S. attorney’s office is looking into whether Greenberg illegally interfered with his company’s share price just before AIG’s acquisition of insurer American General Corp. in August 2001, the Journal reported, citing people familiar with the matter.

Megan L. Gaffney, a spokeswoman for federal prosecutors, declined to comment on whether a probe was underway.

Greenberg sought the help of Richard Grasso, then-chairman of the New York Stock Exchange, for keeping the company’s shares above a trigger price that would have required AIG to pay more for Houston-based American General, the sources told the newspaper.

Grasso wasn’t in the office that day, but the request was relayed to floor traders overseeing AIG stock, though it was unclear whether they interfered to shore up AIG shares, the sources said.

The inquiry is in its early stages and may not result in criminal charges, the Journal said.

AIG spokesman Joe Norton told the newspaper, “Mr. Greenberg has not been contacted or interviewed by the U.S. attorney’s office, and therefore he has no ability to opine on what they are or are not investigating.”

The insurer had previously disclosed that the SEC was considering suing it for alleged civil securities fraud over several 2001 transactions it conducted with PNC, and that the Justice Department was weighing criminal prosecutions against it in the PNC matter and one involving cellphone distributor Brightpoint Inc.

The SEC’s investigation of AIG’s dealings with PNC are said to involve three 2001 transactions in which the Pittsburgh-based bank increased its earnings by shifting $762 million of poorly performing loans and other assets off its balance sheet, allegedly in violation of generally accepted accounting principles.

A PNC subsidiary already agreed in June 2003 to pay $115 million in civil fines and restitution to settle the SEC’s allegations of securities fraud. The subsidiary was accused of conspiracy to violate securities laws by transferring $762 million in troubled loans and investments to off-balance-sheet entities in 2001.

In that case, the Justice Department deferred prosecution of PNC, citing its cooperation in a related investigation.

AIG shares rose 3 cents to $64.23 on Wednesday on the New York Stock Exchange.