American Insurance Group is in trouble again. The Jacksonville Police and Fire Pension Fund, never shy about initiating big-time lawsuits, has initiated the first subprime mortgage-related class action against the troubled insurance group.
The $1 billion pension fund, represented by lawyers at Bernstein, Litowitz, Berger & Grossman, has charged AIG with violating securities law by lying to investors about AIG's exposure in the subprime mortgage crisis. Bernstein Litowitz has represented the fund on securities litigation in the past, says Gerald Silk, the lead Bernstein partner on the matter.
AIG has lost about $11 billion on credit default swaps linked to mortgages; it reported a $7.8 billion first quarter loss earlier this month. The company's stock price has been cut in half since reaching a high of $72.65 last year.
John Keane, executive director of the pension fund, says AIG's problems have cost the fund between $700,000 and $800,000.
All along, the company assured investors it could weather the subprime mortgage crisis, the complaint asserts. In one August 2007 conference call with investors, Joseph Cassano, former head of AIG's derivatives unit, told investors he could not foresee losing even $1 as the credit market plunged.
But in February, PricewaterhouseCoopers, serving as AIG's auditor, discovered big problems in the company's management, oversight and financial reporting. The findings forced AIG to revalue its credit default portfolio, leading to the announcement of billions of dollar in losses.
"They were saying we were not going to lose a buck," Keane says. "When they say things like this, even when things look shaky, it gives you confidence."
The fund has pursued securities fraud class actions before, including the landmark case against United Healthcare Corp., Keane and Silk said.
Weil, Gotshal & Manges is representing AIG, the firm said.
In addition to Cassano, the suit names Martin Sullivan, AIG's current chief executive, and two other top executives, Steven Bensinger and Robert Lewis.