Three Ohio retirement systems won class-action certification of a lawsuit filed against American International Group Inc. over allegations of accounting fraud and other securities law violations that mislead investors, causing billions of dollars in investment losses.
Judge Deborah A. Batts of the U.S. District Court for the Southern District of New York granted the systems' motion for class-action certification for equity shareholders but excluded bondholders.
The $69 billion Ohio Public Employees Retirement System, $62.9 billion Ohio State Teachers Retirement System and $10 billion Ohio Police and Fire Pension Fund, all of Columbus, initially filed suit against AIG on Oct. 15, 2004. The three funds were named lead plaintiffs on Feb. 7, 2005.
In her ruling, Ms. Batts noted that the certified class action consists of more than 2 million investors and defined the class-action group in part as investors who purchased AIG stock between Oct. 28, 1999, and April 1, 2005.
The allegations predate the financial crisis of 2008 that led to the massive federal bailout of AIG. The systems' accusations date to the 1990s, alleging among other things that AIG paid billions of dollars in contingent commissions to have business steered to it, took part in bid-rigging, and schemes to hide AIG underwriting losses.
Ohio Attorney General Richard Cordray, who is overseeing the litigation for the three retirement systems, said: “We are happy with the ruling even though it clips our wings on the bond side. The core of the case has always been the stock issues … The vast majority of the damages, in the billions of dollars, are in the stock” for the entire class of investors.
Mr. Cordray didn't have an estimate of retirement systems' loses or combined class losses. “We are still quantifying them,” he said.
The class certification “clears us to go to trial,” he added. “There is very little chance of them having the case thrown out (now).”
In denying class-action certification for bond investors, Ms. Batts wrote that the claims related to AIG stock are “based upon different legal theories and would require proof of different facts than their … claims related to AIG bonds.”
Mr. Cordray said his office is reviewing legal options on the bond side.
In a statement, AIG officials said: “Although we continue to believe that no class should be certified, we are pleased that the court refused to certify any bondholder claims and significantly limited the equityholder claims. AIG already has paid $800 million to an SEC fair fund to compensate its investors, including those that are part of the alleged class in this lawsuit — more than what all the other defendants have agreed to pay combined. Any additional payments from AIG would not only come at the expense of taxpayers, but would greatly benefit the plaintiffs' lawyers who would undoubtedly seek millions in fees from any judgment or settlement.”