N.Y. Court Approves $72 Million Settlement for Gen Re’s Shareholders

The settlement brings to an end nine years of litigation stemming from allegations that AIG engaged in improper accounting practices. In all, the shareholder litigation has resulted in settlements of more than $1 billion.

During a Sept. 10 hearing, U.S. Judge Deborah Batts approved the most recent settlement after declaring that it was "fair, reasonable and adequate." The $72 million will be placed into a fund and paid out to shareholders involved in the class action, according to court records.

The settlement did not require Gen Re to admit any wrongdoing, according to the ruling.

The 2004 lawsuit, led by two Ohio state pension funds, stems from allegations that AIG entered into a "sham" transaction with Gen Re, in which AIG purported to reinsure Gen Re on certain insurance contracts. The lawsuit alleged the transaction transferred no real risk from Gen Re to AIG and therefore should not have been treated as an insurance transaction on AIG's books. The transaction was allegedly designed to increase the insurance reserves on AIG's financial statements to help bolster stock prices.

In June, New York's highest court cleared the way for the state's fraud lawsuit to proceed against former AIG Chairman and Chief Executive Officer Maurice "Hank" Greenberg and Howard Smith, the company's former chief financial officer. The suit alleges Greenberg and Smith participated in a bogus transaction designed to bolster AIG's stock price.

The Court of Appeals for the State of New York upheld a lower court's decision to deny Greenberg and Smith's petition for summary judgment, saying there was sufficient evidence for a trial to proceed against the two former AIG officers (Best's News Service, June 26, 2013).

Greenberg is now the CEO and chairman of C.V. Starr Co.

In April, Batts signed off on a $115 million settlement to resolve claims against Greenberg and other AIG executives filed by a group of shareholders who have said in court papers that AIG misled investors by allegedly inflating stock prices, engaging in a bid-rigging scheme and disseminating false statements that ultimately led to a $3.4 billion restatement in 2005. Shareholders settled with AIG in 2012 for $725 million, as well as with PricewaterhouseCoopers for $97.5 million, according to court records.

A former AIG executive and four former Gen Re executives reached a settlement last year resolving criminal charges related to the alleged sham finite reinsurance transaction that had them pay their court-ordered fines, but face no jail time (Best's News Service, June 25, 2012). The executives --- Christian Milton, former AIG vice president of reinsurance; Ronald Ferguson, former Gen Re chief executive; Elizabeth Monrad, former Gen Re chief financial officer; Christopher Garand, former Gen Re head of finite reinsurance operations in the United States; and Robert Graham, former assistant general counsel at Gen Re --- were convicted on charges including conspiracy and securities fraud in 2008, but three years later, an appellate court ordered a new trial in the case (Best's News Service, June 25, 2012).

The conduct at issue in those lawsuits allegedly took place prior to AIG receiving up to $182 billion in government bailouts during the financial crisis of 2008 and 2009. The proceeds of the latest settlement will go to shareholders who bought stock in AIG between Oct. 28, 1999, and April 1, 2005.

Greenberg and a class of AIG shareholders have filed suit against the federal government over the bailout, when the Federal Reserve of New York took a 79.9% equity and voting interest in the company. The suit, which was granted class status in March, seeks to recover roughly $55.5 billion in alleged losses (Best's News Service, March 14, 2013).

AIG subsidiaries currently have Best's Financial Strength Ratings of A (Excellent). Shares of AIG  were trading at $49.69 a share the afternoon of Sept. 13 --- up 0.81% from the previous close.