AIG: A Goldman victim?

NEW YORK (CNNMoney.com) -- It's hard to think of AIG as a victim after the insurer made failed bets that were so big, taxpayers were forced to bail the firm out to the tune of $182 billion.

But the Securities and Exchange Commission's fraud charges against Goldman Sachs (GS, Fortune 500) raise the question about how much AIG (AIG, Fortune 500) is really to blame.

The troubled insurer's downfall stemmed from insurance contracts (credit default swaps) on assets called collateralized debt obligations owned by Wall Street firms including Goldman Sachs. Those CDOs were made up of mortgage securities, which plummeted in value when the bottom fell out of the housing market.

AIG was forced to raise billions of dollars in collateral in order to insure against the CDOs' losses. Those so-called collateral calls eventually overwhelmed what was by far the world's largest insurance company to the point that AIG required a government bailout to stay afloat.

AIG is now thinking about going after Goldman if it can prove the Wall Street giant lied about the underlying value and risk of the assets it asked AIG to insure, according to news reports.

If Goldman withheld information about some of those CDOs from AIG, by not telling the insurer that the CDO's fund manager was betting its value would fall, for example, AIG may have a point.

When asked if it's possible to see AIG as the victim, Mike Perlis, partner at Stroock & Stroock & Lavan and former assistant director at the SEC, said, "Of course it's possible."

"Insurers who wrote policies based on false information will seek to void coverage if possible," Perlis added.

AIG did not return requests for comment.

Insurance experts say that if the SEC wins its case, AIG has more than a decent shot at recovering some of the money it paid out to Goldman after the value of the CDO tumbled.

"If it was determined that Goldman perpetrated fraud, and not just a case of AIG not being diligent enough in its research, a lot of people including AIG would have strong claims against Goldman," said Julie Grandstaff, managing director of StanCorp Investment Advisers. "Everyone who was involved in the CDO craze was lulled into a false sense of security. AIG likely thought it was insuring just another CDO."

Grandstaff said that AIG could try to take Goldman to court in an attempt to void any remaining contracts it has with the Wall Street firm. AIG is still insuring more than $1 billion of Goldman's CDOs, according to a source with knowledge of AIG's portfolio.

Overall, AIG insured about $20 billion of of Goldman's CDOs. Of that $20 billion, $14 billion-worth were purchased by the Federal Reserve Bank of New York, giving Goldman a return of 100 cents on the dollar on those CDOs. Of the remaining $6 billion, AIG has signed agreements with Goldman to cancel all but $1.3 billion of its credit default swaps on Goldman's CDOs, the source said.

AIG reported $2 billion of losses last year related to its canceling of Goldman's CDOs.

The insurer is unlikely to recover the full value of its losses related to those CDOs, said Grandstaff. But AIG would likely try to recoup as much of the cash it had to put up as it could, if it decides to pursue the case.

Many things still need to happen before AIG can reasonably think about getting any money back on those doomed transactions.

"First, Goldman has to lose its case against the United States, but if Goldman loses, they'll lose a lot of other cases too," said David Merkel, chief economist at Finacorp Securities. "AIG could ultimately pick up something from Goldman, but Goldman has one of the best legal teams around, and it could be years before we get to that point."