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Bunning Says SEC Should Investigate New York Fed Employees Over AIG Payments

Senator Jim Bunning, R-Kentucky, sent a letter to Securities and Exchange Commission Chairman Mary Schapiro Monday, saying that the SEC should investigate New York Federal Reserve Bank staff for their role in getting American International Group (AIG) to withhold information from public filings.

Last week, Representative Darrell Issa, R-Calif., released e-mails from the New York Fed that told AIG to drop a disclosure from a December 2008 filing that showed AIG paid banks, including Goldman Sachs (GS), 100 cents on the dollar for credit- default swaps they purchased from AIG.

At the time the e-mails were written, Treasury Secretary Timothy Geithner was still president of the New York Fed.

"Because the information withheld appears to be material information about the financial condition of AIG and the value of the company, these actions may constitute a serious violation of securities laws," Bunning wrote.

He added, "While the decision to pay par may not have been a violation of securities laws, the controversial nature of the decision provided a strong motive for the apparent cover-up.

"In fact, the identities of the counterparties and the amounts paid to them were only disclosed several months later and might never have been disclosed without significant pressure from Congress," Bunning said.

Bunning added that the apparent manipulation of public disclosures by the New York Fed "does not seem to be an isolated incident," citing the situation in which former Bank of America (BAC) CEO Kenneth Lewis was "allegedly pressured by government officials to withhold information from and act against the best interests of the bank's shareholders in relation to the purchase of Merrill Lynch."

Bunning said he urges Schapiro to "investigate the apparent violations of the securities laws regarding the AIG disclosures, including actions taken by employees and agents of the Federal Reserve Bank of New York and government officials."

In the wake of the release of the e-mails, some Republicans have been calling for Geithner to resign. Geithner and New York Fed General Counsel Thomas Baxter have also been asked to testify about AIG's disclosures.

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