WASHINGTON—Accounting firm Ernst & Young L.L.P. has agreed to pay $1.6 million in fines in a settlement with the Securities and Exchange Commission in connection with a structured financial product that was developed by American International Group Inc. and used by Pittsburgh-based PNC Financial Services Group Inc. in 2001.

AIG, PNC and others using the product previously reached settlements on the issue with the SEC. "This is the end of the line for us," said Scott Friestad, an associate director in the SEC's enforcement division.

E&Y, which neither admitted nor denied wrongdoing, was sanctioned "for conduct arising out of the firm's violations of auditor independence standards," according to the SEC.

"The events at issue took place more than five years ago, and we are pleased to put this matter behind us," the New York-based accounting firm said in a statement. "The SEC's order recognizes that 'E&Y has significantly revised its independence policies and procedures' since these events occurred."'

According to SEC documents, a unit of New York-based AIG developed a product in 2001 called a Contributed Guaranteed Alternative Investment Trust Security and marketed it to several public companies, including PNC. For a fee, AIG offered to establish a special-purpose entity to which a company would transfer troubled or other potentially volatile assets.

AIG said that under generally accepted accounting principles, the special-purpose entity did not have to be consolidated into a company's financial statements, enabling it to avoid income statement charges resulting from declines in the transferred assets. But, according to the SEC, the SPE should have been consolidated into the financial statements according to GAAP.

Michael S. Joseph, then a partner in E&Y's national office, helped develop the product for AIG and advised PNC on its accounting treatment, according to the SEC.

PNC used the product to transfer $762 million of loan and venture capital assets from its balance sheet in three transactions, the SEC said.

In 2002, PNC consented to a cease-and-desist order issued by the SEC. That same year, PNC also agreed to pay $30 million to settle a class action lawsuit brought by investors in connection with the transactions.

In addition, PNC paid a $115 million penalty in 2003 to the U.S. Department of Justice, including a $25 million fine and $90 million for a restitution fund. PNC also restated its 2001 results.

In 2004, AIG agreed to pay $126 million in penalties and disgorgement to the Justice Department and the SEC to settle charges over transactions involving PNC as well as Plainfield, Ind.-based mobile telephone distributor Brightpoint Inc.

The payment reflected an $80 million penalty to the Justice Department over the PNC and Brightpoint transactions and a $46 million payment to an SEC disgorgement fund related to the PNC deals. AIG admitted no wrongdoing under the settlement.

In addition, the SEC filed cease-and-desist orders last December against Mr. Joseph and Thomas Grabe, the former head of PNC's accounting policy department, concerning violations of securities laws.