American International Group Inc. and some of its directors and officers have agreed to a $725 million settlement to resolve allegations of wide-ranging fraud laid out in a class action suit led by three Ohio pension funds.
Ohio Attorney General Richard Cordray said Friday the latest figure will combine with previous AIG settlements reached with secondary defendants to pay about $1 billion to shareholders, including pensions representing firefighters, police, teachers, librarians and others. He characterized it as the 10th largest securities litigation settlement in U.S. history.
The lawsuit alleged anti-competitive market division, accounting violations, and stock price manipulation by AIG between October 1999 and April 2005.
"The serious misconduct by AIG more than deserves today's large settlement," Cordray said.
A message was left with AIG representatives seeking comment.
Cordray's office represented the Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, and the Ohio Police and Fire Pension Fund, who were lead plaintiffs.
The settlement still requires court approval, after which an initial payment will be made of $175 million, Cordray said. AIG will fund the remaining $550 million through one or more offerings of common stock.
If the necessary amount can't be raised, plaintiffs will have three options: terminate the agreement, acquire shares of AIG stock worth $550 million, or grant an extension, he said.
The suit alleged that AIG:
- Committed accounting fraud that culminated in a $3.9 billion restatement in May 2005 that included an array of transactions through which the company artificially boosted its reported claims reserves. Those transactions included allegations relating to a $500 million no-risk fraudulent reinsurance transaction with General Reinsurance Corp. in relation to which one AIG executive and four General Reinsurance executives were found guilty of securities fraud.
- Divided the market for certain types of insurance by paying tens of millions of dollars in undisclosed contingent commissions to insurance brokers and through bid-rigging.
- Engaged in stock price manipulation that Cordray called "straightforward," in which AIG executives ordered traders to inflate the company's stock price.
In addition to the $725 million announced Friday, the case against AIG also includes several earlier settlements: $72 million with General Reinsurance; $97.5 million with PricewaterhouseCoopers LLP, and $115 million with former AIG chairman Hank Greenberg and other AIG executives and related corporate entities.