AIG 2011 Annual Report Download - page 329

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities Lending Dispute with Transatlantic Holdings Inc.
On May 24, 2010, Transatlantic Holdings, Inc. (Transatlantic) and two of its subsidiaries, Transatlantic
Reinsurance Company and Trans Re Zurich Reinsurance Company Ltd. (collectively, Claimants), commenced an
arbitration proceeding before the American Arbitration Association in New York against AIG and two of its
subsidiaries (the AIG Respondents). Claimants allege breach of contract, breach of fiduciary duty, and common
law fraud in connection with certain securities lending agency agreements between AIG’s subsidiaries and
Claimants. Claimants allege that AIG and its subsidiaries should be liable for the losses that Claimants purport to
have suffered in connection with securities lending and investment activities, and seek damages of $350 million
and other unspecified damages.
On June 29, 2010, AIG brought a petition in the Supreme Court of the State of New York, seeking to enjoin
the arbitration on the ground that AIG is not a party to the securities lending agency agreements with Claimants.
On July 29, 2010, the parties agreed to resolve that petition by consolidating the arbitration commenced by
Claimants with a separate arbitration, commenced by AIG on June 29, 2010, in which AIG is seeking damages of
Euro 17.6 million ($22.8 million at the December 31, 2011 exchange rate) from Transatlantic for breach of a
Master Separation Agreement among Transatlantic, AIG and one of its subsidiary companies.
On September 13, 2010, the AIG Respondents submitted an answer to Claimants’ claims asserting, among other
things, that there was no breach of the securities lending agency agreements, and that Claimants’ other allegations
including purported breach of fiduciary duty and fraud are not meritorious. Transatlantic submitted an answer
denying liability with respect to AIG’s claim on September 13, 2010. Claimants recently increased its claimed
damages to an amount of approximately $500 million.
On January 26, 2012, AIG Respondents and Claimants reached a binding agreement to terminate the
arbitration proceedings and to dismiss all claims between the parties without any admission of liability by any of
the parties. Pursuant to the agreement, the parties will first seek to reach an overall mediated settlement of the
claims in the arbitration proceeding along with various other business matters that were not at issue in the
arbitration. If a mediated resolution including all claims and outstanding business issues cannot be reached by
April 30, 2012, then the parties will try to reach a mediated resolution of the securities lending claims only,
including a settlement payment to Transatlantic between $45 million and $125 million. If the parties cannot reach
such resolution, the parties have agreed that the mediator will, by June 1, 2012, determine the amount of a
settlement payment to Transatlantic with respect to the securities lending claims in a range between $45 million
and $125 million. Accordingly, AIG has accrued an amount it believes is reasonable for this settlement.
Employment Litigation against AIG and AIG Global Real Estate Investment Corporation
Fitzpatrick matter. On December 9, 2009, AIG Global Real Estate Investment Corporation’s (AIGGRE)
former President, Kevin P. Fitzpatrick, several entities he controls, and various other single purpose entities (the
SPEs) filed a complaint in the Supreme Court of the State of New York, New York County against AIG and
AIGGRE (the Defendants). The case was removed to the Southern District of New York, and an amended
complaint was filed on March 8, 2010. The amended complaint asserts that the Defendants violated fiduciary
duties to Fitzpatrick and his controlled entities and breached Fitzpatrick’s employment agreement and agreements
of SPEs that purportedly entitled him to carried interest fees arising out of the sale or disposition of certain real
estate. Fitzpatrick has also brought derivative claims on behalf of the SPEs, purporting to allege that the
Defendants breached contractual and fiduciary duties in failing to fund the SPEs with various amounts allegedly
due under the SPE agreements. Fitzpatrick has also requested injunctive relief, an accounting, and that a receiver
be appointed to manage the affairs of the SPEs. He has further alleged that the SPEs are subject to a constructive
trust. Fitzpatrick also has alleged a violation of ERISA relating to retirement benefits purportedly due. Fitzpatrick
has claimed that he is currently owed damages totaling approximately $196 million, and that potential future
amounts owed to him are approximately $78 million, for a total of approximately $274 million. Fitzpatrick further
AIG 2011 Form 10-K 315