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AIG is said to be replacing Goldman as its top adviser

As its legal troubles mount, Goldman Sachs is losing a big corporate client: the American International Group.

AIG, the insurance giant that planned to retain Goldman to help reorganize its businesses, has replaced Goldman as its main corporate adviser, according to three people with knowledge of the matter, which was not intended to be public. Instead, the insurer is turning to Citigroup and Bank of America.

The move is the first in what some analysts warn could be a series of defections among Goldman’s clients after accusations — vigorously denied by Goldman — that it defrauded customers in a complex mortgage investment. A Goldman spokesman declined to comment.

As Goldman’s legal problems have escalated — first with a civil fraud suit filed by the Securities and Exchange Commission, and then with a federal criminal investigation — some investors have grown increasingly anxious about the potential damage to Goldman’s reputation and business.

AIG’s decision leaves Goldman out of the mix at a pivotal moment for the insurance company and breaks a traditionally close relationship..

Bill targets citizenship of terrorists’ allies

WASHINGTONProposed legislation that would allow the government to revoke American citizenship from people suspected of allying themselves with terrorists set off a legal and political debate Thursday that scrambled some of the usual partisan lines on civil-liberties issues.

The “Terrorist Expatriation Act,” co-sponsored by Sens. Joseph Lieberman, I-Conn., and Scott Brown, R-Mass., would allow the State Department to revoke the citizenship of people who provide support to terrorist groups like al-Qaida or who attack the United States or its allies.

Some Democrats expressed openness to the idea, while several Senate Republicans expressed concern. Brown, who endorsed aggressive tactics against terror suspects during his campaign for the late Sen. Edward Kennedy’s seat, said the bill was not about politics.

“It reflects the changing nature of war and recent events,” Brown said Thursday. “War has moved into a new dimension. Individuals who pick up arms — this is what I believe — have effectively denounced their citizenship, and this legislation simply memorializes that effort.”

Senate nod to approval of Fed audit is expected

WASHINGTON — The Senate on Thursday moved close to approving a proposal to require a one-time audit of the Federal Reserve’s response to the financial crisis, and to force the central bank to disclose the recipients of more than $2 trillion in aid, including the bailouts of big banks.

The proposal, by Sen. Bernard Sanders of Vermont, gained momentum even as Republicans and Democrats continued to clash over procedural issues with legislation that would overhaul the nation’s financial regulatory system.

While the Sanders amendment requiring the audit appeared to have enough support among senators in both parties to easily win adoption, a vote was postponed until sometime next week. The White House and the Fed had opposed the original proposal by Sanders, which would have allowed additional audits of the Fed. A modified proposal from Sanders appeared to address those concerns, though the Fed still had concerns.