U.S. investigators are probing the former head of American International Group Inc's Financial Products unit, Joseph Cassano, and other executives for securities fraud, a law enforcement source familiar with the case said on Friday.

The source said that a grand jury may be impaneled this month in New York to consider potential charges that executives failed to disclose the value of toxic assets to the bailed-out insurance company's outside accountants and shareholders.

The investigation is really who knew what and when about these assets, said the source, who asked not to be identified because the probe was ongoing. They were holding toxic credit default swaps and may not have disclosed their real worth.

A spokesman for the office of the U.S. Attorney in Brooklyn, New York, where the grand jury would sit, declined to comment. The U.S. Department of Justice and the U.S. Securities and Exchange Commission in Washington also declined to comment.

Cassano, who left AIG under a cloud in 2008, could not be reached for comment. Cassano's lawyer, F. Joseph Warin of the Washington, D.C. law firm Gibson Dunn, and AIG declined to comment.

The losses from subprime mortgage investments left AIG on the verge of bankruptcy last September. The U.S. government stepped in at the eleventh hour to rescue the firm with a bailout package that has since swelled to as much as $180 billion, after officials deemed the company too big to fail.

The company's auditor had cited the insurer for a material weakness in controls related to its accounting for possible losses from a portfolio of credit default swaps, a type of derivative, linked to the subprime residential market.

Cassano was initially kept on as a consultant, but left the insurer's financial products unit for good after the controversy about potential losses grew, AIG said.

AIG recorded more than $99 billion in losses in 2008.

(Reporting by Grant McCool; Additional reporting by Lilla Zuill; Editing by Toni Reinhold)

New York Aig