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AIG to Resolve Fraud Claims

Source: NY Times

Posted on 19 Jul 2010

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American International Group (AIG) has agreed to pay $725 million to three Ohio pension funds to settle claims of widespread fraud, stock manipulation and bid-rigging.

Taken together with previous settlements, A.I.G. will have ladled out more than $1 billion to Ohio investors, money that will go to firefighters to teachers, librarians and other pensioners. Discussing the accord on Friday, Attorney General Richard Cordray said it was the first billion-dollar settlement arising from the current financial crisis, and the 10th largest securities class-action settlement ever in the United States.

“No privileged few are entitled to play by different rules than the rest of us,” Mr. Cordray said during a press conference. “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.”

A.I.G.’s former chief executive, Maurice R. Greenberg, and other executives agreed to pay $115 million in an earlier settlement with Ohio.

In a regulatory filing Friday, the company stated it would pay $175 million into an escrow account within 10 days of court approval. It will fund the rest of the settlement through one or more stock offerings, raising $550 million.

“This settlement ends a long-standing lawsuit, allowing A.I.G. to continue to focus its efforts on paying back taxpayers and restoring the value of our franchise,” Mark Herr, a company spokesman, said in a press release.

In fact, prospects for the company raising more than a half-billion dollars through a stock offering are not immediately clear. A.I.G. is the definition of a company in turmoil. Its chairman resigned this week after a fierce feud with the chief executive, who has referred dismissively to “all those crazies down in Washington.” It is Washington that over the past two years has given A.I.G. the largest bailout in United States history, making $182 billion available to the company.

Given A.I.G.’s size, the complexity of its deals, and the chances that dozens of huge pension funds could lose billions of dollars, federal officials decided that a bailout was preferable to the havoc that might follow from a bankruptcy.

Should the company fail to raise the $550 million, Ohio has the right to resume its litigation.