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Judge refuses to dismiss AIG lawsuit

The American International Group (AIG) building is seen in New York's financial district March 16, 2009. REUTERS/Brendan McDermid

The American International Group (AIG) building is seen in New York's financial district March 16, 2009.

Credit: Reuters/Brendan McDermid

By Jonathan Stempel

NEW YORK | Mon Sep 27, 2010 3:01pm EDT

NEW YORK (Reuters) - A judge refused to dismiss a securities fraud lawsuit accusing American International Group Inc (AIG.N) of misleading investors about its exposure to subprime mortgages, which led to a liquidity crisis and $182.3 billion of federal bailouts.

Monday's ruling by U.S. District Judge Laura Taylor Swain allows the case to go forward and could pave the way for a trial over AIG's near collapse. The government rescue led taxpayers to take a nearly 80 percent stake in the New York-based insurer.

AIG spokesman Mark Herr declined to make an immediate comment.

Investors led by the State of Michigan Retirement Systems accused AIG, executives and directors of failing to disclose the risks that AIG had taken on through its portfolio of credit default swaps (CDS) and a securities lending program.

Swain wrote that the allegations in the class-action lawsuit were sufficient to suggest there was "a strong inference of fraudulent intent" in how AIG communicated publicly about the risks in the portfolio of credit default swaps.

She also said that plaintiffs made sufficient arguments to claim that AIG "materially misled the market" in hiding its "expansive" CDS underwriting, repeatedly expressing confidence in its ability to manage risk and justifying a May 2008 capital raising.

Among the defendants are Martin Sullivan, a former AIG chief executive; Joseph Cassano, who ran AIG's Financial Products unit, which managed the CDS portfolio; current and former directors; 34 banks that underwrote AIG securities, and former accountant PricewaterhouseCoopers LLP.

The lawsuit covers investors who owned AIG securities between March 16, 2006, and September 16, 2008, when AIG received its first bailout.

E. Powell Miller, a lawyer for the lead plaintiff, declined to make an immediate comment, saying he had yet to confer with his client.

Brad Karp, a lawyer for the banks, declined to make an immediate comment. James Gamble, a lawyer for the outside directors, declined to comment. Lawyers for Sullivan, Cassano and PwC did not immediately return calls seeking a comment.

Shares of AIG rose $1.67, or 4.6 percent, to $38.14 in afternoon trading on the New York Stock Exchange.

The case is In re: American International Group Inc 2008 Securities Litigation, U.S. District Court, Southern District of New York, No. 08-05072.

(Reporting by Jonathan Stempel; Editing by Maureen Bavdek and Steve Orlofsky)
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Comments (4)
alwayslearning wrote:
Good. However, there is no mention of a criminal investigation. Why not? Fraud is still illeagal, isn’t it? It is right that the civil suit continue, followed by criminal charges, wouldn’t you say?

Sep 27, 2010 3:45pm EDT  --  Report as abuse
Stupidscript wrote:
Usually the order is criminal prosecutino first, then civil. This is because (a) you don’t want to muck up the criminal trial by doing something weird during the civil trial (because criminal takes priority) and (b) a positive outcome in the civil trial is MUCH more likely if the defendant has already been convicted in criminal court.

The burden of proof for criminal charges is vastly different than for civil charges. For example, in the OJ Simpson case, he was acquitted of criminal liability but lost in the civil court, because the burden of proving a criminal wrong had occurred was much heavier than the burden of proof required to prove a civil wrong had occurred.

If there is ONLY a civil trial, you can bet that a criminal trial on the same charges will never take place. It’s already been abandoned.

Sep 27, 2010 3:54pm EDT  --  Report as abuse
thisisamess wrote:
Can any of you legal eagles explain why Sarbanes-Oxley with it’s criminal penalties shouldn’t be applied to this case? From the judges comments there appears to beat least some evidence of deception or omissions on the part of the principles at AIG that led to monetary loses by the shareholders. Isn’t this the basic premise of Sarbanes-Oxley?

Sep 27, 2010 5:25pm EDT  --  Report as abuse
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