AIG could be sued by America's two largest pension funds, which are looking to claw back the cash lost as the insurer's market value goes into freefall.

Reports today said Calpers and Calstrs had seen the value of their AIG stakes drop from $1.5bn to $1.1bn since the AIG accounting scandal emerged.

The California state treasurer Phil Angelides has given the green light to pension fund chief executives looking to retrieve the lost $400m.

AIG, its leading executives and auditors PriceWaterhouseCoopers could be named as defendants in the case.

Angelides reportedly said: “AIG is a poster child of the corporate corruption that has brought the fairness and integrity of our nation's financial markets into question, if these allegations prove to be true.”