American International Group, Inc. ("AIG" or the Company) is a global finance and insurance corporation.
On May 21, 2008, a class action lawsuit was filed on behalf the Jacksonville Police and Fire Pension Fund against AIG. The Complaint alleges that the Defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and that two individual Defendants violated Section 20(a) of the Exchange Act.
Specifically, the Complaint alleges that during the Class Period, AIG and the individual Defendants, including the Chief Executive Officer, Executive Vice President and Chief Financial Officer, Senior Vice President and Chief Risk Officer, and the former head of AIG subsidiary American International Group Financial Products ("AIGFP"), violated the federal securities laws by issuing false and misleading press releases, financial statements, filings with the SEC and statements during investor conference calls. The Complaint alleges that throughout the Class Period, Defendants repeatedly reassured investors that AIG had successfully insulated itself from the recent turmoil in the housing and credit markets due to its superior risk management. In particular, Defendants touted the security of AIGFP's "super senior" credit default swap ("CDS") portfolio, making numerous statements that this portfolio was secure and that AIG's method for accounting for the valuations of this portfolio accurately reflected its value.
The Complaint continues, saying investors began to learn the truth regarding AIG's financial condition and the Company's exposure to the mortgage market when, on February 11, 2008, the Company disclosed that its outside auditor had determined that there was "material weakness in its internal control" over the financial reporting and oversight relating specifically to its accounting for the CDS portfolio, and that the Company was revising the loss valuations it previously reported. Under the new valuations, losses on the CDS portfolio more than quadrupled -- from the $1.4 billion reported on the CDS portfolio just weeks before to over $4.5 billion. Two weeks later, on February 28, 2008, AIG disclosed that the market valuations on the CDS portfolio would increase to $11.5 billion and revealed for the first time that the Company had notional exposure of $6.5 billion in liquidity puts written on collateralized debt obligations ("CDOs") linked to the sub-prime mortgage market. Finally, on May 8, 2008, the Company disclosed that market valuation losses on the CDS portfolio for the quarter climbed an additional $9.1 billion, for a cumulative loss of $20.6 billion, and that the Company was expecting actual losses on the portfolio to be about $2.4 billion. As a result of these disclosures, the price of AIG stock plunged from a Class Period high of $75.24 per share on June 5, 2008, to $38.37 per share on May 12, 2008, wiping out tens of billions of dollars in shareholder value and causing damage to the class.
On October 9, 2008, a class action lawsuit, captioned Margaret Carroll, et al. v. American International Group Inc., et al., was filed in the United States District Court, Southern District of New York, docket number 08-CV-8659, on behalf of all persons who purchased 7.70% Series A5 Junior Subordinated Debentures (NYSE:AVF) of AIG (NYSE:AIG) from the date of the Company's public offering on December 11, 2007 (the "Offering"), and all purchasers traceable thereto (the "Class Period") against certain officers and directors of AIG and certain Underwriters of the Offering, pursuant to Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. Sec. 77k, 77l and 77o (the "Class"). The Underwriters include Citigroup Global Markets Inc. (NYSE:C), Merrill Lynch & Co., Inc. (NYSE:MER), Morgan Stanley & Co. Incorporated (NYSE:MS), UBS Securities LLC (NYSE:UBS), Wachovia Capital Markets, LLC (NYSE:WB), Bank of America Securities LLC (NYSE:BAC), Bear, Stearns & Co. Inc., The Bear Stearns Companies, LLC, RBC Capital Markets and Wells Fargo Securities (NYSE:WFC). The Complaint asserts that AIG's Prospectus contained both material misstatements and omissions, which Plaintiff and the Class relied upon to their detriment. The representations made in the Company's Prospectus were materially false and misleading because at the time of the Offering, AIG was already suffering from several adverse factors that were not revealed and/or adequately addressed in the document. These factors include, but are not limited to, the fact that, contrary to representations in the Prospectus: (i) AIG did not have a relatively small exposure to loss associated with credit swaps sold by certain variable interest entities; (ii) AIG's exposure to loss associated with credit protection assumed by AIGFP on portfolios of loans or debt securities was not remote, even in severe recessionary market scenarios; and (iii) AIG's financial statements and financial information, as contained in and incorporated by reference into the Prospectus, were not presented in conformity with generally accepted accounting principles.
On December 4, 2008, a class action Complaint, captioned Fire and Police Pension Association of Colorado, et al. v. American International Group, Inc., et al., was filed in the United States District Court, Southern District of New York, docket number 08-CV-10586. The Complaint alleges violations of Sections 11, 12, and 15 of the Securities Act of 1933. Until an unprecedented federal government bailout of the Company in September this year, AIG stood as the world's largest insurer. A self-proclaimed pioneer in the field, the Company consistently touted its role as an industry leader in issuing a quasi-insurance product known as a super senior credit default swap ("CDS"). A CDS is a derivative instrument purchased by investors seeking to hedge exposure to default on increasingly complex debt instruments. Over the past several years, AIG sought to capitalize on the growing market for CDSs, assuring investors that the Company's expertise and careful management of its CDS portfolio ensured a virtually risk-free profit center for the Company, even in the harshest of market conditions. Increased defaults on the complex debt instruments tied to the CDSs prompted AIG's CDS counterparties to question the Company's valuations. Unbeknownst to investors, many of these counterparties began demanding that the Company post billions in collateral under the terms of the CDSs. Although never truthfully disclosed to investors, escalating collateral calls and plunging CDS valuations began to threaten the Company's liquidity and financial position, prompting AIG to seek tens of billions in dollars from the investing public in an attempt to stave off the pending calamity brewing at the Company's financial products division that sold the CDSs. As it did so, AIG and the Defendants in this action-including the professional gatekeepers who received hundreds of millions of dollars in fees for their role in garnering tens of billions of dollars from the investing public-failed in their obligation to ensure the accuracy of AIG's public filings. When the true extent of the Company's imperiled financial condition began to be revealed, the securities identified herein plunged in value. This action seeks to recover the losses investors suffered as a result.
On January 15, 2009, a class action Complaint, captioned Epstein Real Estate Advisory, et al. v. Bank Of America Corporation, et al., was filed in the United States District Court for the Southern District of New York, docket number 09-CV-00428, seeking class action status on behalf of purchasers of AIG Medium-Term Notes, Series AIG-FP ("Notes") issued by AIG pursuant and/or traceable to AIG's public offerings of Notes pursuant to a prospectus dated July 24, 2006 and a series of prospectus supplements (the "Offering Documents"), during the period from November 17, 2006 through April 10, 2008. AIG issued a prospectus supplement for each of the 59 series of Notes offered for sale, commencing with the prospectus supplement for FP-1 on November 17, 2006. The Complaint names as Defendants AIG, several investment banking firms that acted as sales agents for the Note offerings, and certain directors and officers of AIG, and asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The Notes were offered and sold to the public through various investment banking firms and broker-dealers, including the following: AIG Financial Securities Corp., ABN AMRO Incorporated, Banca IMI S.p.A., Banc of America Securities LLC, Barclays Capital, Inc., Bear Stearns & Co., Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BNY Capital Markets, Inc., Calyon Securities (USA) Inc., Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Daiwa Securities America, Inc., Daiwa Securities SMBC Europe Limited, Deutsche Bank Securities, Inc., Goldman Sachs & Co., Greenwich Capital Markets Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Lehman Brothers Inc., McDonald Investments Inc., Mitsubishi UFJ Securities International plc, Morgan Stanley & Co. Incorporated, Nomura Securities International, Inc., RBC Capital Markets Corporation, Santander Investment Securities Inc., Scotia Capital (USA) Inc., SG Americas Securities, LLC, TD Securities (USA), LLC, UBS Securities LLC, and Wachovia Capital Markets, LLC. The Complaint asserts that the Offering Documents were materially false and misleading in failing to disclose material facts relating to the severely deteriorating financial condition of AIG at the time of the offering and that when such facts were disclosed, the market value of the Notes declined substantially. In particular, the Offering Documents failed to disclose: 1) that AIG's significant exposure to the subprime mortgage market as a result of AIG's extensive holdings in subprime mortgage-backed securities constituted a serious and material risk to AIG's creditworthiness and credit standing; 2) that AIG's exposure from its sale of credit default swaps constituted a serious and material risk to AIG's creditworthiness and credit standing; and 3) that these serious risks and exposures adversely affected the market value of the Notes, which declined substantially upon disclosure of this adverse information.
On March 20, 2009, Judge Laura Taylor Swain signed the Order consolidating AIG securities actions, appointing lead Plaintiff and approving co-lead Counsel. According to the Order, pursuant to Fed. R. Civ. P. 42(a) and the PSLRA, the above-captioned actions are consolidated into Civil Action No. 08 Civ. 4772 (LTS) for all purposes including, but not limited to, discovery, pretrial proceedings and trial. The consolidated action shall be referred to collectively as In re American International Group, Inc. Securities Litigation, Master File No. 08 Civ. 4772 (LTS)(KNF) (the "Consolidated Securities Action"). Pursuant to the PSLRA, the State Treasurer of the State of Michigan, Custodian of the Michigan Public School Employees Retirement System, State Employees’ Retirement System, Michigan State Police Retirement System, and Michigan Judges Retirement System (“SMRS”) is appointed lead Plaintiff in the AIG Securities Action for the proposed class of persons and entities who purchased or otherwise acquired AIG securities as alleged. The motions filed in the above-captioned actions by OTPP I PGGM, the KBC Group, Saginaw, Oakland County, the Fogel Group, Powell Trust, Rubin and Epstein are hereby denied. SMRS’ choice of co-lead Counsel is approved. Accordingly, the law firms of Barrack Rodos & Bacine and the Miller Law Firm, P.C. are appointed co-lead Counsel for the Consolidated Securities Action. Co-lead Counsel in the Consolidated Securities Action, along with the lead Counsel separately appointed by the Court in the Consolidated ERISA Action, Master File No. 08 Civ. 5722, and the Consolidated Derivative Action, Master File No. 07 Civ. 10464, shall coordinate efforts, to the extent possible and consistent with their respective duties, to avoid duplication including, but not limited to, discovery, if necessary.
On May 20, 2009, the lead Plaintiff filed a Consolidated Class Action Complaint adding certain officers, directors, underwriters and the auditor as Defendants. The Consolidated Class Action Complaint also adds violations of Section 11, Section 12(a)(2) and Section 15 of the Securities Act. On July 16, 2009, the claims against one of the named Defendants were severed pursuant to Rule 21 of the Federal Rules of Civil Procedure. On August 5, 2009, the Defendants responded to the Consolidated Class Action Complaint by filing several motions to dismiss. These motions to dismiss were then pending before the Court.
On September 27, 2010, Judge Laura Taylor Swain denied the dismissal motions in the subprime-related securities class action lawsuit pending against AIG, certain of its former directors and officers, its accountant and its offering underwriters. On October 12, 2010, the Defendants filed motions for reconsideration from the previous order. The motions were denied on February 8, 2011.
On April 1, 2011, the Plaintiff filed a motion to certify the class On July 6, 2011, the Plaintiff filed a renewed motion to certify the class.
According to a press release dated August 18, 2011, bailed-out insurer AIG and dozens of banks have filed motions in federal court to block a proposed nationwide class-action suit against them over AIG's 2008 near-collapse. Their argument is that the proposed class is ultimately too large and too diverse to have anything in common, particularly citing the recent Supreme Court decision throwing out a class-action suit against Wal-Mart Stores Inc on similar grounds. AIG came within minutes of bankruptcy before the government rescued it in September 2008 with a bailout that ultimately totaled $182 billion. Even after a share sale last May, the government still owns 77 percent of the company. The State of Michigan Retirement System, as lead Plaintiff, has asked the federal court in lower Manhattan to certify a class consisting of anyone who bought AIG common stock from mid-March 2006 to the date of the bailout, plus anyone who took part in 101 different securities offerings over that time period. But AIG, in its filing Wednesday, argued that the proposed class covered so many different time periods, so many different sets of circumstances prior to its bailout and so many different kinds of financial interests that it was impossible to say such a broad class had anything in common. "(Given) the varied market conditions and disclosures, the diverse characteristics of the securities and the disparate interests of investors, lead Plaintiff has not come close to carrying its heavy burden" to provide such proof, AIG said. In a separate memorandum of law, the banks -- all underwriters on various AIG offerings over the period in question -- also argued that they do not have a sufficient amount in common to be sued as a class.
On October 12, 2011, the Defendant underwriters filed a motion for judgment on the pleadings. On November 2, 2011, the class certification motion (docket entry no. 284) was terminated without prejudice to an application for restoration following the completion of class certification-related discovery.
On the Form 10-Q filed with the S.E.C. on August 4, 2014, AIG disclosed that on July 15, 2014, the parties accepted a mediator’s proposal to settle the Consolidated 2008 Securities Litigation for a cash payment by AIG of $960 million. A Settlement Agreement was filed with the Court on September 12. This Settlement was preliminarily approved by the Court on October 7. On March 20, 2015, the Settlement was given final approval and judgment was entered in this case. On July 2, 2018, the Court issued an Order granting lead Plaintiff's Motion for final distribution of net settlement fund.