AIG probed on subprime-mortgage contracts

American International Group Inc. is under investigation by the Securities and Exchange Commission for overstating the value of contracts linked to subprime mortgages, The Wall Street Journal said. Additionally, prosecutors from the Justice Department and the U.S. attorney’s office for the Eastern District of New York in Brooklyn have asked the SEC for information the regulator has been collecting on AIG, signaling a possible criminal probe, insiders told the Journal. The New York-based insurer’s valuation of credit default swaps, which protect against the default of securities — including collateralized debt obligations backed by subprime mortgages — are in question, the Journal said. AIG’s mortgage-related investments have put the insurer in the red for the last two quarters. Last month, it reported a first-quarter loss of $7.81 billion, primarily attributed to investment losses. “We have provided a substantial amount of detail on the investor webpage and in regulatory filings on how the valuations were calculated, based on data at that time,” said AIG spokesman Michael Arcaro told InvestmentNews. “We made clear that these were estimates and were subject to change based on the credit markets.”