The U.S. Justice Department has dropped a probe of American International Group Inc executives involving the credit default swaps that sent the insurer to the brink of bankruptcy and forced a huge taxpayer bailout, lawyers for the executives said on Saturday.

The investigation had centered on AIG Financial Products, which nearly brought down the giant insurer after writing tens of billions of dollars on insurance-like contracts on complex securities backed by mortgages that turned out to be toxic.

The U.S. government stepped in with a $182 billion bailout to avert a bankruptcy filing by AIG.

The criminal probe had focused on whether Joseph Cassano, who ran the financial products unit, and Andrew Forster, his deputy, knowingly misled investors about the company's accounting losses on its credit default swaps portfolio.

Although a 2-year, intense investigation is tough for anyone, the results are wholly appropriate in light of our client's factual innocence, F. Joseph Warin and Jim Walden, Cassano's lawyers, said in a statement.

Forster's lawyers also confirmed the probe had been dropped.

We were very pleased but not surprised to hear from the DOJ late yesterday that they were dropping the criminal investigation of our client, David Brodsky, one of Forster's lawyers, said in a statement. In the end, the facts were stronger than the emotions surrounding AIG's problems.

The Department of Justice declined to comment.

AIG said in a statement it welcomed the decision'

The Wall Street Journal first reported on Friday that the two-year investigation, one of the highest profile of the various probes stemming from the 2008 financial meltdown, had been dropped.

The FBI and other government agencies had been looking into whether Cassano misled investors with overly optimistic forecasts about the extent of the firm's exposure to securities backed by risky subprime mortgages.

Investigators were said to have focused on a December 2007 investor presentation at which Cassano played down the market value of losses on the credit default swaps.

Over the course of the next year, AIG took writedowns of more than $40 billion on the swaps and had to put up billions more in collateral to counterparties like Goldman Sachs .

Cassano resigned under pressure in March 2008 as AIG's financial situation began to weaken.

(Additional Reporting by Jim Marshall in Chicago and Jim Vicini in Washington; Editing by Peter Cooney)

Aig