US prosecutors mull case against AIG's former financial unit head

After 18 months of investigation, US prosecutors are preparing to set up a grand jury to consider an indictment of the former head of the Financial Products unit of American International Group Inc (AIG) for securities fraud, the Wall Street Journal reported today.

The Justice Department and the Securities and Exchange Commission have been investigating whether Joseph Cassano, who headed the unit nearly brought down the insurer a year ago, allegedly mislead investors by overstating the value of mortgage-related contracts and fail to disclose material facts about them to AIG's outside auditor, the paper said.

The grand jury will sit in Brooklyn, New York, and could also weigh charges against other employees of AIG, the newspaper added.
Cassano has denied any wrongdoing.

His lawyer said AIG was fully aware of his client's activities and that he has been cooperating with the inquiry.

The possible case could rely partly on tape recordings of phone calls in 2007 involving employees of AIG Financial Products who discussed the value of credit-default swaps.

As head of AIG's financial products division, Cassano was responsible for the sale of credit default swaps (CDS), which insured banks and investors against counterparty risk on bond investments. The CDS sales, which brought in huge profits for AIG in 2007, began to sink with the subprime mortgage crisis hit the US.