AIG faces lawsuit by Florida pension fund
May 22, 2008
Reuters--May 22, 2008
(Reuters) – A Florida pension fund has filed a lawsuit against American International Group Inc (AIG.N: Quote, Profile, Research) and four top officials, including Chief Executive Martin Sullivan, for allegedly issuing false and misleading statements relating to the insurer’s finances that inflated the prices of AIG securities.
The Jacksonville Police and Fire Pension Fund filed a complaint, which seeks class-action status, in U.S. district court in Manhattan.
It accuses New York-based AIG of repeatedly but falsely assuring investors that its risk management and diversification insulated it from credit market turmoil in 2007. Credit market problems led AIG to suffer a $7.8 billion first-quarter loss.
"In truth, AIG hid or recklessly ignored facts regarding the mounting losses on the company’ assets and insurance products tied to the residential mortgage market, even as its top management continued to claim that AIG’s actual exposure was ‘close to zero,’" the complaint said.
The complaint was filed on behalf of the fund by Bernstein Litowitz Berger & Grossmann LLP, according to the law firm’s Web site. The New York Times earlier reported the complaint.
New York-based AIG did not immediately return a call seeking comment.
The fund alleged that AIG consistently assured investors of the safety of its "super senior" credit default swap (CDS) portfolio, and that it was "highly unlikely" to suffer any actual losses as a result of the credit market meltdown.
According to the complaint, AIG’s former derivative unit head Joseph Cassano said in August 2007: "It is hard for us with, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions."
The fund said the truth about the losses began to emerge in February 2008, when the company revealed that auditor Pricewaterhouse Coopers LLC discovered problems in its financial reporting and oversight, requiring it to revalue its credit swaps portfolio.
Earlier on Wednesday, a spokesman said former AIG chief Maurice "Hank" Greenberg may face civil charges for his alleged role to improperly boost the insurer’s financials.
The spokesman confirmed an earlier report that Greenberg received a "Wells notice" from the U.S. Securities and Exchange Commission on Friday, indicating possible charges over his role in reinsurance transactions between AIG and Berkshire Hathaway’s (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) General Re Corp unit.
AIG ousted Greenberg in 2005. (Reporting by Ajay Kamalakaran in Bangalore; Editing by Kim Coghill)