Probe focuses on AIG financial products: WSJ

NEW YORK (Reuters) - American International Group Inc's (AIG.N: Quote, Profile, Research, Stock Buzz) financial-products division, already burnt by accounting issues, is coming under scrutiny in government probes, The Wall Street Journal reported on Friday.

The Securities and Exchange Commission and the U.S. Justice Department are investigating whether the insurer intentionally overstated the value of subprime mortgage-linked contracts.

The division specializes in credit-default swaps, contracts that are at the heart of the mortgage crisis.

Regulators are focused on an investor presentation held on December 5, the Journal said, at which both AIG Chief Executive Martin Sullivan and former financial-products chief Joseph Cassano said risks from the roiling subprime crisis were unlikely to cause the insurer major damage.

"U.S. residential housing exposures are manageable given AIG's size, financial strength and diversified global businesses," Sullivan said at the investor presentation, adding that the possibility that his AIG financial products unit would sustain a loss was "close to zero."

In May, AIG raised $20 billion of capital that Citigroup said in a research report was largely geared towards shoring up the division, which had admitted to violating accounting rules.

After the division posting stellar returns in 2006, the insurer agreed in November to pay $126 million to settle U.S. Department of Justice and SEC allegations that it sold products that helped PNC Financial Services Group Inc. (PNC.N: Quote, Profile, Research, Stock Buzz) and cell phone distributor Brightpoint Inc. (CELL.O: Quote, Profile, Research, Stock Buzz) inflate earnings.

(Reporting by Christopher Kaufman; Editing by Quentin Bryar)