"The penalty reflects AIG's participation in the Brightpoint fraud, as well as misconduct by AIG during the Commission's investigation of this matter," the SEC stated. But in a separate statement, AIG neither admitted nor denied the regulators' findings.

This is the second time in recent months that AIG has been accused of improper business activity. In July, the New York State insurance department said AIG's New Hampshire Insurance Co. had repaid $500,000 after improperly collecting terrorism insurance premiums on some 600 New York City homeowners policies. The department at first said the collections were "illegal" and then said an investigation is underway.

Commenting on the SEC's enforcement action against AIG, Wayne Carlin, regional director at SEC's Northeast regional office, said that in this case, "AIG worked hand in hand with Brightpoint personnel to custom-design a purported insurance policy that allowed Brightpoint to overstate its earnings by a staggering 61 percent."

This transaction, Mr. Carlin continued, was simply "a 'round-trip' of cash from Brightpoint to AIG and back to Brightpoint." By disguising the money as "insurance," AIG enabled Brightpoint to spread over several years a loss that should have been recognized immediately, he observed.

Stephen Cutler, director at the SEC's division of enforcement, also noted that this case illustrates how securities regulators will "pursue insurance companies and other financial institutions that market or sell so-called financial products that are, in reality, just vehicles to commit financial fraud."

AIG did not "come clean" in the course of the Commission's investigation, another SEC official said.

"On the contrary, AIG withheld documents and committed other abuses, as outlined in the administrative order, compounding its overall misconduct," said Mark Schonfeld, associate regional director at SEC's Northeast regional office,

AIG defended its actions in a statement: "The consent decree issued by the SEC relates to a ?non-traditional' insurance product with respect to which a single insurance policy was issued in 1999 by an AIG subsidiary. AIG consented to the SEC order to settle the matter and neither admitted nor denied the SEC's findings."

AIG said "mistakes were made" in the underwriting of the Brightpoint policy. The insurer said it has taken "steps to correct those mistakes. AIG's profit from this policy was less than $100,000."

Additionally, AIG said it doesn't expect settlement terms with the SEC to have any material impact on the company's current or future operating results.