AIG considers $1.5bn payment to settle suit

American International Group, one of the world's biggest insurers, could be preparing to pay one of the largest penalties to settle fraud charges. The insurance firm is reported to be discussing a payment of about $1.5bn (£850m) with state and federal authorities in the United States to put a damaging accounting scandal behind it.

Eliot Spitzer, the New York attorney general, and the New York state insurance Department filed a civil fraud suit against AIG last May, accusing it of misleading investors through improper accounting. The suit also named Maurice "Hank" Greenberg, AIG's former chief executive, whose long and respectable career came to an abrupt halt when he was forced to resign last March as chairman and chief executive.

Mr Greenberg, 80, is not included in the settlement talks and intends to fight the suit in court, according to the report in the Wall Street Journal. In addition, the settlement would not include Howard Smith, the former finance chief, also named in the suit. Both have denied wrongdoing.

The United States financial watchdog, the securities and exchange commission, is also a part of the settlement talks, likely to take place in two or three weeks, according to the Journal.

The suit accuses the company of manipulating the books to make AIG appear in better financial health. Last summer, after Mr Greenberg had stood down, the company restated its financial results dating back to 2000, reducing earnings by more than 10%, almost $4bn. AIG is the largest seller of property-casualty insurance in the world and the biggest life insurer in the US.

AIG, now under the leadership of another company veteran, Martin Sullivan, 51, has already made changes to its corporate governance. They include the appointment of a non-executive chairman, the creation of a regulatory and compliance committee on the board and the hiring of Arthur Levitt, a former SEC chief, as a special adviser.

AIG and Mr Spitzer's office both said only that settlement talks are continuing.