(Adds location of possible proceedings, US attorney’s office declining to comment)

Sept 11 (Reuters) - U.S. prosecutors are preparing to impanel a grand jury to consider indicting the former head of American International Group Inc's AIG.N AIG Financial Products unit for securities fraud, the Wall Street Journal reported.

The Department of Justice and the Securities and Exchange Commission have been investigating whether Joseph Cassano overstated the value of mortgage-related contracts and failed to disclose material facts about them to AIG’s outside auditor, the paper said, citing people familiar with the matter.

The grand jury would sit in Brooklyn, New York, and could also weigh charges against other employees of AIG, the newspaper said.

Cassano has denied any wrongdoing. A U.S. Department of Justice spokeswoman declined to comment, as did a spokesman for U.S. Attorney Benton Campbell. Cassano’s lawyer and SEC representatives could not immediately be reached.

The possible case, which follows an 18-month investigation, could rely partly on tape recordings of phone calls in 2007 involving employees of AIG Financial Products who discussed the value of credit-default swaps, the people told the Journal.

Cassano’s lawyer told the paper that AIG was fully aware of his client’s activities and that he has been cooperating with the inquiry. (Reporting by Chakradhar Adusumilli in Bangalore; Editing by Ted Kerr, Dave Zimmerman)