The plaintiffs are investment funds whose investors include state, municipal and corporate pension and retirement funds; educational, research and charitable endowments; and other institutional and individual investors. In their new securities lawsuit, entitled The case is Franklin U.S. Rising Dividends Fund, et al. v. American International Group Inc., case number 2:13-cv-05805 in the U.S. District Court for the District of New Jersey, they allege AIG disseminated false and misleading statements concerning its financial results and operations and manipulated the stock market during the period in which they purchased AIG stock.
According to the lawsuit: “AIG perpetrated two wide-ranging fraudulent schemes: first, a contingent commission payment and bid rigging arrangement with Marsh & McLennan Cos., which the New York Attorney General at the time likened to ‘the same kind of cartel-like behavior carried out by organized crime.’”
The lawsuit also states that in October 2004, Eliot Spitzer, who was the New York Attorney General at the time, implicated AIG in a scheme to pay insurance brokers improper “contingent commissions” that resulted in unsuspecting clients being led by the brokers to purchase AIG insurance policies at inflated prices.
“To facilitate that scheme, AIG participated in bid-rigging to deceive customers into thinking the bids for their business were competitive. This illegal scheme virtually guaranteed that the duped customers would renew their AIG-written policies, as so-called ‘competitive’ bids from other insurance companies were pre-arranged to be made at prices higher than AIG’s. In connection with this bid-rigging scheme, AIG also submitted fake, noncompetitive bids in order to allow its co-conspirators to retain or obtain certain insurance business at inflated, non-competitive prices,” the lawsuit states.
The lawsuit states that a second scheme involved insurance accounting frauds that were fully revealed on May 31, 2005, and which resulted in AIG slashing its earnings by 10% and reducing the value of its shareholders’ equity by $2.26 billion.
“The restatement involved improper transactions across multiple major areas, including: the transfer of risk in connection with various reinsurance deals; so-called “top side” adjustments to claims reserves and other accounts; mischaracterizing certain income as underwriting income; and converting underwriting losses into capital losses,” the lawsuit states.