NU Online News Service, Jan.13, 2:51 p.m. EST

WASHINGTON–A House government oversight panel ordered the Federal Reserve Bank of New York to produce documents related to its role in American International Group's failure to disclose details of the decision to pay AIG trading partners in full.

At the same time as that action yesterday, the ranking member of a Senate subcommittee that oversees the Securities and Exchange Commission asked the agency to conduct a full investigation into the Fed's role in the decision to pay counterparties 100 cents on the dollar on credit default arrangements that went bad.

"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 the securities laws," Sen. Jim Bunning, R-Ky., said in a letter to SEC Chairman Mary Schapiro.

Sen. Bunning is the ranking minority member of the Senate Banking Committee's Securities, Insurance and Investment Subcommittee.

Later in the day, Rep. Edolphus Towns, D-N.Y., chairman of the House Committee on Oversight and Government Reform, disclosed that his panel had issued a subpoena for documents related to the Fed bank's role in AIG's failure to disclose the names of the banks whose credit default arrangements were paid off in late 2008.

"To help the committee's investigation of payments made by AIG to its counterparties, I am issuing a subpoena today to the Federal Reserve Bank of New York," Rep. Towns said.

"This subpoena will provide the committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout," he said. AIG has received billions in Troubled Asset Relief Program assistance in exchange for giving the government a 79.9 percent interest in the firm.

Maurice Greenberg, former AIG chairman and CEO, said he believes that AIG's debt to the government should be reduced by $62 billion to cover the value of the CDS paid off by AIG because the mortgage-backed securities AIG had paid off had a market value far less than the face value of the securities.

The documents sought by subpoena relate to the Fed's role in preparing the security filing issued by AIG related to its payoff of the CDS.

According to testimony last March by then AIG CEO Edward Liddy, at the time the Fed loaned AIG up to $182 billion to cover margin calls on the CDS, AIG had $2.77 trillion outstanding in unhedged insurance on CDS arrangements.

The documents sought by subpoena related to complex derivative instruments called collateralized mortgage obligations insured by AIG that were sold to a Fed facility called Maiden Lane III by 16 banks. So far, AIG has only reported through SEC filings the names of the 16 banks and the total dollars each bank received for those mortgage-related securities.

The banks included Societe Generale, Goldman Sachs, Barclays, Paribas, Deutsche Bank and Merrill Lynch.

The Fed e-mails on the issue were released to the press by Rep. Darrell Issa, R-Calif., ranking minority member of the Oversight panel.

They were provided by Robert Benmosche, current CEO of AIG.

The filing with the Securities and Exchange Commission did not include a Schedule A, which would provide the amounts and the names of the institutions which AIG paid off.

That information was not disclosed until May 2009, after members of the Senate Banking and House FSC demanded the information. And, in the material provided Rep. Issa by AIG, the SEC also privately asked AIG why the full data was not disclosed.

Members of Congress, including Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, and Sen. Richard Shelby, R-Ala., ranking minority member of the committee, voiced anger at the failure to disclose the payoffs at a March 2009 hearing on the issue.

Sen. Bunning in his letter Monday asking for an investigation by the SEC said, "The decision by the Fed Bank of New York to effectively pay full value for the securities underlying the derivatives contracts when the market price was substantially less has been a source of significant controversy."

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

Republicans, including Rep. Issa, Rep. Roy Blunt, R-Miss., and Rep. Spencer Bachus, R-Ala., ranking minority member of the House Financial Services Committee, have voiced strong anger in recent days over the Fed's role.

They have criticized Treasury Secretary Timothy Geithner, who was head of the New York Fed at the time when the Fed and the Bush administration made the decision to provide more than $180 billion to AIG in return for 79.9 percent of its stock.

A Treasury spokesperson said Mr. Geithner was not involved in the decisions being questioned by House Republicans.