U.S. abandons case against AIG

NEW YORK (CNNMoney.com) -- The U.S. Justice Department has concluded its criminal probe into AIG and will not pursue charges against the insurer or its senior executives.

Joseph Cassano, who headed the AIG (AIG, Fortune 500) unit that insured mortgage-related securities, and two colleagues were informed late last week that they wouldn't face charges, attorneys for Cassano confirmed Monday.

"Although a two-year, intense investigation is tough for anyone, the results are wholly appropriate in light of our client's factual innocence," said Cassano's lawyers, F. Joseph Warin and Jim Walden, in a statement. "The large group of federal agents and prosecutors was diligent and professional throughout the investigation."

The decision to end the investigation was widely expected. According to Cassano's attorneys, the Justice Department determined there wasn't enough evidence to bring criminal charges against AIG or its executives. The Justice Department did not immediately respond to requests for comment.

Investigators had been focusing on whether Cassano misled investors when he stated in 2007 that the insurer's portfolio of so-called credit default swaps would not produce significant losses.

"We welcome the Justice Department's decision, and we continue to cooperate with other authorities on their assessment of these events as we focus on strengthening our businesses and repaying American taxpayers," said AIG spokesman Mark Herr in a statement.

AIG's downfall stemmed from bad bets made by its Financial Products division. The unit wrote credit default swaps on mortgage securities. The value of those securities plummeted when the bottom fell out of the housing market in the summer of 2007.

At the same time, Cassano said publicly that the company's losses would be limited. He ultimately left AIG in March 2008 after the insurer reported an $11 billion quarterly loss for the division.

Losses related to credit default swap deepened in the second quarter of 2008, and nearly brought the company to its knees following Lehman Brothers' collapse on Sept. 15. On Sept. 16, the government gave AIG a bailout worth up to $85 billion, a total that has since risen to $182 billion.

If Cassano knew that the underlying value of those contracts was less than he made public to shareholders, legal experts say that would have been a criminal offense.

While the criminal investigation into the insurer has ended, AIG still is being scrutinized by the Securities and Exchange Commission, according to news reports.