By Gemma Ashman
BBC Radio 4's Money Box
It is decision time for investors with money in the AIG enhanced fund
Five and a half thousand people could lose up to one eighth of their money after taking out an investment bond with AIG.
They have until 25 November to decide between cashing in the bond at a loss, and getting half of their money back straight away with the rest in 2012.
Nearly 900 account holders have formed an action group claiming the product was sold as safe when it was not.
But AIG says that the risks were made clear and their offer will mean investors need not lose money.
The bond was designed for people investing at least £100,000.
Typical investors were those who had sold a small family business and hoped to support their retirement using the AIG enhanced fund income, according to Zia Khan, chairman of the AIG Action Group, speaking on BBC Radio 4's Money Box.
They could have asked for advice about the risks but Mr Khan said there did not seem to be a need:
"They would put their money with one of the big banks - the banks would look at the deposit account and say 'OK, you're earning 5%, how would you like to earn 6% or a bit more with no risk attached?' And that's how it was sold to people."
Former investment ombudsman, Adam Samuel, who advises companies on whether their sales literature complies with the law, told Money Box:
"The brochure I've seen does not set out where the money is going to be invested and it does not set out, therefore, the nature of the risks that the customer is going to be encountering."
The product was in fact partly backed by mortgages and credit card debt.
Safer than banks?
Mr Samuel also felt that although there were a "number of references to the instant access nature of the product" it was not made sufficiently obvious that AIG reserved the right to "lock the fund in the event of mass surrenders":
"What you mustn't do is give with the large print and take away with the small print."
He told Money Box that some correspondence described the bond as safer than a bank account because of the deposit protection arrangements.
But that was "just straight wrong - banks benefit from much better deposit protection."
However, Doug Brown, chief executive of AIG Life, thought the literature was "clear" and did "outline the risks."
And he said that while the fund aimed "where possible to allow quick and easy access" and to generate "returns comparable to banks and building societies" AIG was not saying it was a bank or building society.
"We do apologise. It's clear that we weren't able to deliver what was expected when they expected it.
"It's not something that we wanted our policyholders to go through, but these are extraordinary markets and we believe we've come up with a viable solution so that they are guaranteed that they won't lose any money."
If customers do wait until 2012, although they will get all their capital, they are likely to get little return on it over the four year period.
"All we're asking for is to give our money back," Zia Khan told Money Box, "the claim may be either against AIG, it may be against the banks or it may be a combination of both."
An earlier version of this article erroneously reported that policyholders would lose 25% of their money. The market value reduction of 25% only applies to the portion of the original investment not in cash.
BBC Radio 4's Money Box was broadcast on Saturday,
22 November 2008 at 1204 GMT.