The New York Attorney General Eliot Spitzer and New York’s insurance superintendent, Howard Mills, announced that they will look into the way AIG booked its workers’ compensation premiums to see whether accounting for them as general liability was legitimate. The regulators promised to appoint an outside consultant for the audit of AIG’s books.

In another scandalous development, Eliot Spitzer revealed the news of an "internal memorandum" discovered earlier in 2005 that was written by a "former senior executive," that described the practice as illegal. AIG spokesman Chris Winans declined to comment on the announcement.

The internal report by lawyers for American International Group Inc. about the insurer’s accounting released yesterday raises questions about the lack of control in the company. The report doesn’t contain straightforward accusations but signifies that the management ran the company without implementing internal controls.

Chairman and Chief Executive Maurice R. "Hank" Greenberg and dismissed Chief Financial Officer Howard I. Smith were running AIG without financial and accounting controls to regulate their work. The regulatory scrutiny over AIG’s deal with Berkshire Hathaway’s reinsurance unit General Re has forced Mr. Greenberg to leave. Mr. Smith left after he invoked his constitutional right not to incriminate himself in the probe.

Analysts have already said that restatement at the world’s largest insurance company can take $1.77 off the book value of its stock. There are speculations that the actual restatements could even surpass this mark.

AIG says it is fully cooperating with the investigation that is also looking into the 1990s deals to see if AIG could have improperly booked workers’ compensation premiums as general liability.

"As we have said in the past, on all regulatory matters, we are committed to being as cooperative as possible," AIG spokesman Chris Winans said.