AIG's Debt Problems Could Land CEO In Hot Water

Charlie Gasparino,|On-Air Editor

American International Group's disclosure that its losses from risky debt may be billions of dollars more than previously reported could eventually put CEO Martin Sullivan's job in jeopardy, people within the company told CNBC.

Earlier Monday, the world's largest insurer disclosed that the value of some of its risky debt portfolio had plunged by $5.96 billion, not $1.6 billion as AIG reported earlier.

The disclosure cast doubt on AIG's past contention that it didn't face major problems stemming from the credit crisis that has slammed other financial institutions.

AIG's stock plummeted to nearly a five-year low on the news.

In December, Sullivan told investors that exposure levels throughout AIG's businesses, including consumer finance and mortgage insurance, were "manageable."

Sullivan said then that negative results in the housing market would persist, but AIG could hold devalued investments until recovery. Sullivan said the possibility that its AIG financial products unit would sustain a loss was "close to zero."

But in Monday's disclosure, AIG said that its outside auditor, PricewaterhouseCoopers, had concluded that the company had a material weakness in its internal control over financial reporting relating to the fair valuation of credit default swap portfolio obligations of AIG Financial Products.

AIG's Control Issues

A spokesman for the company told CNBC that there is nothing happening, at least for now. "He's not leaving" the spokesman said but declined to comment on whether Sullivan's fate would follow that of other high profile CEOs at MerrillLynch and Citigroup who were forced to resign after disclosing larger writedowns than previously reported.

Sullivan was selected by AIG's board in March 2005 to replace longtime Chief Executive Officer Maurice "Hank" Greenberg amid investigations into the company's record-keeping.

AIG in February 2006 agreed to pay $1.64 billion to resolve allegations that it used deceptive accounting practices to mislead investors and regulatory agencies.

AIG is a multi-line carrier that provides life insurance, property casualty, asset management and services such as aircraft leasing.