NU Online News Service
A federal judge in New York has denied a request by American International Group (AIG) to have a securities fraud class action lawsuit against it dismissed.
U.S. District Judge Laura Taylor Swain, in the U.S. District Court for the Southern District of New York, denied motions from AIG and current and former executives and directors to dismiss the case on various grounds.
The allegations presented by the plaintiffs in the case "support an inference that is 'at least as compelling as any opposing inference' that AIG and the defendants knew facts or had access to information suggesting that their public misstatements were not accurate," wrote Judge Swain.
An investor group of plaintiffs led by the State of Michigan Retirement Systems has accused AIG and some of its executives and directors of "materially misstating the extent to which AIG had accumulated exposure to the subprime mortgage market through its securities lending program and its credit default swaps (CDS) portfolio," according to court documents.
"This decision is not a ruling on the merits, and simply allows the case to proceed to discovery," Mark Herr, spokesman for AIG, said in an e-mail. "We are confident that when all of the facts come out, as they did during the course of the [Department of Justice] and [U.S. Securities and Exchange Commission's] joint two-year investigation, it will be clear that no fraud occurred and shareholders were not misled as to any of the risks."
In June the SEC ended its investigation of AIG and Joseph Cassano, former head of the company's Financial Products (AIGFP) unit that managed the CDS portfolio, without filing charges.
A month prior the DOJ ended its investigation of the company and did not file charges.
Cassano is named as a defendant in the class action lawsuit along with former chief executive Martin Sullivan and other executives.
According to court documents, two confidential witnesses have said AIGFP could not economically hedge its CDS portfolio. However, executives like Andrew Forster, an executive vice president with AIGFP, told investors in May 2007 that AIGFP could handle "the worst recession I can imagine," and that "it's actually fairly easy for us to hedge any of the risks that we perceive."
The group of plaintiffs is comprised of investors who purchased securities issued by AIG between March 16, 2006 and Sept. 16, 2008--the date the federal government agreed to an $85 billion bailout of the mammoth company.
The federal government has made $182.3 billion available to AIG via the Troubled Asset Relief Program. AIG said it owed the government $101.2 billion as of June 30.
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