By Peter Elkind

(FORTUNE Magazine) – LAST OCTOBER, NEW YORK ATTORNEY general Eliot Spitzer forced the resignation of Jeffrey Greenberg, CEO of Marsh & McLennan, the world's largest insurance broker. Could the next head to roll be that of Jeffrey's dad, legendary AIG CEO Maurice Greenberg?

FORTUNE has learned that Spitzer and the Securities and Exchange Commission are investigating whether Maurice "Hank" Greenberg, 79, personally promoted so-called nontraditional insurance or "income statement smoothing" products to heads of other companies. Someone familiar with the probe says Spitzer and the SEC are also pursuing tips that AIG used such products to manipulate its own earnings. (This comes on the heels of the agreement that AIG struck last November to pay an $80 million penalty to the U.S. Department of Justice to settle a criminal complaint connected to its sale of similar products.)

AIG declined to comment. But a source close to the company says, "The company takes the investigation very seriously and is making every effort to cooperate." However, Spitzer, who is already investigating AIG's alleged participation in a widespread bid-rigging scheme with Marsh, doesn't feel Greenberg's company is being entirely forthcoming with his office. Spitzer was angered when AIG's general counsel Ernest Patrikis suggested to investors on Feb. 9 that the company's examination of the alleged scheme turned up very little. "We tried to look at every piece of smoke we could find, and we found no fire," Patrikis said. Six days later two more AIG employees pleaded guilty to charges connected to Spitzer's investigation, bringing the total number up to four. Spitzer said in mid-February that he expects more criminal cases involving AIG employees in the coming weeks.

The struggle between Spitzer and AIG is eerily reminiscent of the one that played out last fall. Jeffrey Greenberg stepped down in October after Spitzer refused to negotiate with the company's top management because he felt it wasn't cooperating fully. His office was particularly outraged with Marsh & McLennan's former general counsel William Rosoff, who told investigators that they didn't "understand" the insurance business. In January, Marsh apologized for its "shameful" conduct and agreed to pay $850 million in restitution to its victimized clients.

Spitzer has yet to determine whether AIG has done anything illegal. And along with AIG, the attorney general has also subpoenaed other insurers, including ACE Ltd. (whose CEO, Evan Greenberg, is also a son of the AIG head) and Berkshire Hathaway, about their involvement with such products. However, it's possible that the SEC might simply force companies that use these products to provide more information about them to investors, rendering such insurance all but useless.

Until recently Greenberg appeared to be unassailable. After all, he has been CEO of AIG, the nation's largest insurance company, for an astonishing 37 years. Now, however, two things are clear. First, there appears to be a showdown looming between Spitzer and Greenberg. As we've already seen, Spitzer doesn't have much patience for CEOs whose companies try to minimize the seriousness of his efforts. Second, this investigation may finally force Greenberg to address an issue the septuagenarian has been loath to discuss publicly: retirement. It might be arriving sooner than he'd hoped. -- Peter Elkind and Devin Leonard