DODGY accounting at AIG may have helped the US insurance giant snatch a takeover prize from Prudential in 2001, some analysts say, adding a fresh twist to the woes surrounding the embattled group.

Questions over the deal for American General may spawn new legal challenges to AIG, which was stripped of its AAA credit rating by Standard & Poor's yesterday.

The firm's all-stock offer at the 11th hour trumped the $26.5 billion (GBP13.8 billion) offer from the Pru. While the British company received $600 million for American General breaking the deal, it was denied the $500 million-a-year cashflow it needed for its push into Asia.

AIG's admission that it had improperly accounted for a deal with Warren Buffett's General Re has put the affair back in the spotlight. AIG's bid for American General depended on the stock trading within a specific range and would have foundered had the shares fallen too far. "The General Re transaction could have helped fool the market into thinking that AIG was in better financial shape than it was," Dreyfus Neenan, an equity analyst at Morningstar, told Dow Jones' MarketWatch.

"This means AIG's share price could have been higher than it should have been, allowing AIG to buy American General more cheaply using its shares as currency."

Some believe that American General shareholders will go on the warpath and AIG could face legal action, former Securities and Exchange Commission attorney and federal prosecutor Christopher Bebel told Market-Watch.