PNC Bank 2006 Annual Report Download - page 24

against our Chairman and Chief Executive Officer, our former
Chief Financial Officer, and our Controller, as well as any
other individuals or entities allegedly responsible for causing
damage to PNC as a result of the PAGIC transactions. The
Board referred this matter to a special committee of the Board
for evaluation. The special committee completed its
evaluation and reported its findings to the Board of Directors
and to counsel for the alleged shareholder. The special
committee recommended against bringing any claims against
our current or former executive officers but made certain
recommendations with respect to resolution of potential
claims we had with respect to certain other third parties.
In July 2003, the lead underwriter on our Executive Blended
Risk insurance coverage filed a lawsuit for a declaratory
judgment against PNC and PNC ICLC in the United States
District Court for the Western District of Pennsylvania. The
complaint seeks a determination that the defendants breached
the terms and conditions of the policy and, as a result, the
policy does not provide coverage for any loss relating to or
arising out of the Department of Justice investigation or the
PAGIC transactions. Alternatively, the complaint seeks a
determination that the policy does not provide coverage for
the payments made pursuant to the Deferred Prosecution
Agreement. The complaint also seeks attorneys’ fees and
costs. In July 2004, the court granted our motion to stay the
action until resolution of the claims against PNC in the
pending consolidated class action described above.
In December 2004, we entered into a tentative settlement of
the consolidated class action. In March 2005, the parties filed
a stipulation of settlement of this lawsuit with the United
States District Court for the Western District of Pennsylvania.
This settlement also covered claims by the plaintiffs against
AIG Financial Products and others related to the PAGIC
transactions.
In July 2006, the district court approved this settlement. The
defendant in that class action not participating in this settlement,
our former independent auditors for the years ended 2001 and
before, had objected to it and, on August 10, 2006, appealed the
decision of the district court approving the settlement to the
United States Court of Appeals for the Third Circuit.
On December 20, 2006, our former independent auditors for
the years ended 2001 and before filed with the district court a
tentative settlement agreement with the plaintiffs regarding the
plaintiffs’ claims against it. This tentative settlement remains
subject to court approval. If this tentative settlement
agreement is finally approved by the court and after it
becomes effective, this defendant will dismiss its appeal of the
court’s approval of our settlement, which would then become
final.
In December 2004, we also settled all claims between us, on
the one hand, and AIG Financial Products and its affiliate,
American International Surplus Lines Insurance Company
(“AISLIC”), on the other hand, related to the PAGIC
transactions. AIG Financial Products was our counterparty in
the PAGIC transactions, and AISLIC is one of the insurers
under our Executive Blended Risk insurance coverage.
Subsequently, we settled claims against two of the other
insurers under our Executive Blended Risk insurance
coverage, as described below. Each of the amounts in these
settlements represents a portion of the insurer’s share of our
overall claim against our insurers with respect to any amounts
disbursed out of the Restitution Fund. We are preserving our
claim against our insurers with which we have not settled.
The following are the key elements of these settlements that
remain conditional at present, pending resolution of the appeal
of the district court’s approval of the settlement of the
consolidated class action:
•Payments into Settlement Fund. The insurers under
our Executive Blended Risk insurance coverage have
funded $30 million to be used for the benefit of the
class. Third parties have funded additional amounts
to be used for the same purpose. The plaintiffs have
been in contact with Mr. Fryman, the administrator of
the Restitution Fund, and intend to coordinate the
administration and distribution of these settlement
funds with the distribution of the Restitution Fund.
Neither PNC nor any of our current or former
officers, directors or employees will be required to
contribute any funds to this settlement.
•Assignment of Claims. We have assigned to the
plaintiffs claims we may have against our former
independent auditors for the years ended 2001 and
before and all other unaffiliated third parties (other
than AIG Financial Products and its predecessors,
successors, parents, subsidiaries, affiliates and their
respective directors, officers and employees
(collectively, “AIG”)) relating to the subject matter
of this lawsuit.
•Insurance Claims. In March 2005, we settled our
claim against one of our insurers under our Executive
Blended Risk insurance coverage related to our
contribution of $90 million to the Restitution Fund.
Under this settlement, the insurer has paid us $11.25
million, but we are obligated to return this amount if
the settlement of the consolidated class action
referred to above does not receive court approval,
does not become effective or becomes unenforceable.
The amount of this settlement will not be recognized
in our income statement until the potential obligation
to return the funds has been eliminated. This
settlement was in addition to settlements with
AISLIC in December 2004 and with another of our
insurers under the Executive Blended Risk policy in
January 2005.
•Other Claims. In connection with the settlement of
the consolidated class action, the claims of IFS on
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