American International Group Inc. (AIG) Settles Class Action Suit for Nearly $1B

Shares of American International Group Inc. (AIG) were trading down -0.04 or -0.07 percent to $55.90 per share in Monday's premarket. The company announced late Friday that AIG shareholders had won approval for a $970.5 million settlement on a class action suit against the company. AIG stock closed at $55.94, up +0.29 or +0.52 percent in Friday's regular trading session.

American International Group Inc., also known as AIG was founded by Cornelius Vander Starr in Shanghai, China in 1919 and was originally known as American Asiatic Underwriters or AAU.
The company expanded through Southeast Asia in the 1920s and subsequently grew to include offices in Havana, Cuba and Latinamerica. After World War II, the company, now known as American International Underwriters entered Japan and provided insurance to American military personnel.

The company was subsequently incorporated as American International Group in 1967 consolidating C.V. Starr's general and life insurance business. More recently, the company ran into trouble in late 2008 due to credit default swaps (CDS) and collateralized debt obligations it had sold on $441 billion in securities with $57.8 billion backed by subprime loans. The liquidity crisis which followed the default on the loans led to the U.S. Federal Government handing out $182.3 billion in Federal Bailouts with $85 billion allocated to AIG to avoid a collapse of the company.

The settlement of the lawsuit, which was filed by shareholders in 2008, was the largest shareholder class action case where no criminal or regulatory actions were pursued, was the largest settlement of its kind. AIG was sued by investors that claimed that AIG misstated its exposure to the subprime mortgage market through its lending practices and credit default swap portfolio. Investors who bought AIG securities from March 16th of 2006 to September 16th, 2008 - when the company received its first bailout - will be covered by the settlement.

Judge Laura Taylor Swain of Federal District Court gave final approval for the settlement noting that no potential member of the class action suit had objected to the settlement, saying that this was strong evidence that the terms of the agreement were, "fair, reasonable and adequate and that the amount was "very substantial with plaintiffs taking a significant risk if further litigation was pursued.

Jeffrey Golan, lawyer for the State of Michigan Retirement Systems and one of the lead plaintiffs in the case said on Friday that, "It's a great settlement and we are extremely gratified to have been able to achieve this result .
The Miller Law Firm and Barrack, Rodos & Bacine, lawyers for the lead plaintiffs in the case won approval of about $116.5 million in legal fees in addition to other expenses.

The U.S. government bailed AIG out in 2008, taking an 80 percent stake in the company. The government has liquidated its investment in the insurer, which resulted in a return of +$22.7 billion to the Federal Reserve and the Treasury Department.

AIG stock has yet to react to the news of the settlement, with a fractional loss in the shares in this morning's pretrial. Nevertheless, AIG is satisfied with the settlement. An AIG spokesperson, Jon Diat, said in a statement on Friday that, "We are pleased that the settlement has been approved by the court and look forward to putting this litigation behind us .

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Published on Mar 23, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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