AIG, THE US government-controlled insurer, is considering action against Goldman Sachs over deals to insure $6 billion (€4.4 billion) in mortgage-backed securities similar to the one that led to fraud charges against the US bank.

AIG’s move over a deal that caused it a loss of about $2 billion is a sign that Friday’s decision by the Securities and Exchange Commission (SEC) to file civil fraud charges against Goldman could spark actions from investors who lost money on mortgage-backed securities.

If AIG and others discover that their transactions had disclosure issues similar to those alleged in the SEC complaint, they would be able to complain to the SEC, file a private lawsuit, or both, lawyers said.

People close to the situation said that AIG was reviewing deals to insure $6 billion-worth of Goldman’s collateralised debt obligations, securities backed by mortgages, in the run-up to the crisis. They added that AIG had yet to decide whether to take action.

AIG and Goldman declined to comment.

Under a deal struck by AIG and Goldman last year, the bank agreed to cancel the insurance on some $3 billion-worth of CDOs in exchange for keeping collateral worth about $2 billion, according to people close to the situation. AIG is believed to have recorded a loss of about $2 billion.

The CDOs being reviewed by AIG are part of a family of securities known as Abacus. The SEC’s complaint is focusing on one of the Abacus deals that is not among the securities insured by AIG.

The regulators allege that Goldman hid from investors the fact that Paulson Co, a hedge fund that wanted to bet against the CDO, had influenced the selection of the loans that went into the security.

The SEC further accuses Goldman of falsely representing to investors that Paulson Co would buy into the security.

Goldman has denied all charges.

People familiar with the bank’s thinking yesterday indicated it would fight any claims by AIG, or any other parties, on CDOs arguing that each security had a different financial and legal structure.

People familiar with the SEC’s thinking say that simply failing to identify the investor taking a short interest in a CDO structure would not be likely enough to establish fraud. What makes the Abacus transaction targeted by the SEC different is the allegation that Goldman actively misrepresented the role of Paulson to ACA, the independent portfolio selector. Two Democratic Congressmen plan to ask the SEC to investigate dealings between Goldman and AIG. – (Copyright The Financial Times Limited 2010)