AIG, Cordray reach $725M agreement

OLUMBUS (Legal Newsline) - Ohio Attorney General Richard Cordray announced over the weekend a $725 million securities class action settlement against international insurance and financial services organization American International Group, Inc., or AIG.

Three Ohio public pension funds, represented by the attorney general, led the class action suit. They included the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, and the Ohio Police and Fire Pension Fund.

The settlement, also against certain individual AIG directors and officers, resolves allegations of AIG's "wide-ranging fraud" from October 1999-April 2005, Cordray's office said. Those allegations included anti-competitive market division, accounting violations and stock price manipulations, his office said.

"This historic settlement is an excellent result for all shareholders harmed by AIG's misconduct, including Ohio's teachers, firefighters, police officers and public employees," Cordray said in a statement Friday.

"Ohio is determined to send a strong message to the marketplace that companies who don't play by the rules will pay a steep price."

The case involved three types of claims, including accounting fraud.

Cordray's office pointed to a $500 million no-risk allegedly fraudulent reinsurance transaction that AIG entered into with General Reinsurance Corp. to "artificially boost AIG's reported claims reserves." One AIG executive and four Gen Re executives were found guilty of securities fraud in relation to the transaction.

The attorney general said AIG also paid tens of millions of dollars in undisclosed contingent commissions to insurance brokers and participated in a "bid-rigging scheme" with insurance brokers and certain insurance companies.

AIG also engaged in straightforward stock price manipulation, in which company executives ordered company traders to inflate AIG stock price, Cordray's office said.

According to the Wall Street Journal's Law Blog, the settlement requires AIG to pay $175 million right away. The other $550 million would be paid later. "The company may well be forced to sell more shares to raise the money," according to the blog.

The settlement, which is subject to court approval, brings total expected recovery for AIG shareholders to more than $1 billion. Cordray said it's the 10th-largest securities class action settlement in U.S. history, and the first and only billion-dollar class action settlement since the financial crisis began to unfold in 2008.

The settlement includes a stipulation that the company has to pay the $550 million if it raises that amount on behalf of the U.S. Treasury as it seeks to repay its bailout, the blog says.

While in office, Cordray has pursued eight major lawsuits including those against Bank of America, Fannie Mae, Freddie Mac, Marsh, Merrill Lynch, the Rating Agencies and United Health Care.

Including this weekend's announcement, more than $2.7 billion has been recovered through these suits, his office said.

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